Oral Answers to Questions

TRANSPORT

The Secretary of State was asked—

Chase Railway Line

Tony Wright: What steps are being taken to improve reliability on the Chase line from Birmingham to Cannock, Hednesford and Rugeley.

Tony McNulty: Poor performance has been a problem on that line, mainly stemming from infrastructure problems. I understand that Network Rail has initiated a project to look at every problem on the line and identify solutions.

Tony Wright: I am grateful to my hon. Friend for that answer. The Chase line, which serves my constituency, has been a huge success in terms of passenger usage since it opened, but its reliability has been a continuing disaster. We need serious investment in that line if we are to get people off the crowded west midlands roads and on to public transport. Will he do some real joined-up thinking and talk to Central Trains, which acknowledges the need for infrastructure investment, and to Network Rail, so that we can achieve some reliability improvements on that line?

Tony McNulty: I certainly agree with my hon. Friend. As he suggests, the problems are mostly the result of aged infrastructure, and Central Trains has raised the issue, as a matter of major concern, with Network Rail. They have had a number of meetings, and they will meet again today. I will certainly take a keen interest in what flows from that meeting and in the subsequent infrastructure projects that Network Rail proposes, and I will get back to my hon. Friend because I accept his points.

Road Casualties

Jim Cunningham: What steps have been taken to reduce the number of road casualties in England since 2003.

David Jamieson: Reducing the number of people killed or seriously injured on our roads is the central feature of our wide-ranging road safety strategy. The provisional 2004 first quarter casualty figures show that we are now over halfway towards our 2010 target of achieving a 40 per cent. reduction in the number of people killed or seriously injured and over three quarters towards our 50 per cent. reduction target for children. There is no room for complacency, but I believe that we can be justifiably proud of the progress that we are making.

Jim Cunningham: I thank my hon. Friend for that answer, but will he tell the House what discussions he has had with the Secretary of State for Education and Skills on road safety training in schools, which is a very important factor?

David Jamieson: I agree that the education of children in better road use is extremely important. I have had recent discussions with the Under-Secretary at the Department of Education and Skills, my hon. Friend the Member for Enfield, Southgate (Mr. Twigg), on that matter and on issues that relate to the School Transport Bill, which covers some wider issues, as well as the safety of children on the journey to school. I am pleased to say that much of the money that has come from my Department and gone to local authorities, through local transport plans and other revenue expenditure funds to create safer journeys to school, has been a large contributor to the massive reduction in the number of children killed and seriously injured on our roads in the past three years.

Christopher Chope: The Minister says that he is not being complacent, but why has he not mentioned the fact that road fatalities have been increasing under this Government? Is that not a matter of great concern? Does he not think that the Government are spending too much money on education in relation to obesity and the consequences of smoking in public places but not spending enough money on road safety education? If the Government were concerned about road safety education, why did they not allow safety camera partnership money to be invested in such education?

David Jamieson: I thought that the hon. Gentleman was against safety cameras and that he wanted them all removed. If that were to happen, there would be no such spending on road safety. He says that we are complacent and he often recites lines to suggest that, somehow or other, there was a golden age when he was the Roads Minister and things were better. I do not want to be party political, but for the further information of the House, I remind him that, when he was a Minister, there were 1,000 more deaths and 18,000 more people seriously injured each year on our roads than today. Things are getting very much better. There has been enormous progress in the past three years. I just wish that the hon. Gentleman felt that he could share in the success that we are clearly achieving.

Michael Clapham: My hon. Friend will be aware that the roadway is a workplace for many people and that about 1,000 of the people killed on the roads each year are professional drivers. Has he given any further thought to how he might work with the Health and Safety Executive to draw up a strategy to prevent those accidents?

David Jamieson: Yes, about 1,000 people each year who die on the roads—about a third of road deaths—are killed in connection with their work. We have had discussions with the Health and Safety Executive for some time to consider ways in which we can make improvements, and many of the larger companies now use a code of practice that relates to the safety on the road of drivers of their company vehicles. Sadly, although some companies probably take health and safety seriously in the workplace, they still do not consider that drivers who have left the factory gate or the office remain their responsibility. We are greatly concerned about that, but I am sure that my hon. Friend would agree that it is a very complex and difficult issue to tackle. Nevertheless, we are focused on it.

John Thurso: Is the Minister aware of the worrying trend of motor cycle accidents? Motor cycle use last year rose by 10.4 per cent., but accidents rose by 14 per cent., and something like one in five of all those killed on our roads are motor cycle users. Does the Minister accept the recommendations and strategy of the Advisory Group on Motorcycling, and especially its recommendation for a fundamental review of the direct access scheme? What are the Government doing to give effect to those suggestions?

David Jamieson: I thank the hon. Gentleman for his question. One of the reasons why road deaths increased slightly in 2003 was the number of motor cyclists killed on our roads, which is to be regretted. As he said, people on two-wheeled vehicles account for about 20 per cent. of road deaths. The Advisory Group on Motorcycling, which we set up, has met for some time and all motor cycling and safety interests are represented on it. It produced a wide-ranging, sensible and pragmatic report, after which we considered immediately the action that the Government, motor cyclists and the motor cycle media must take. We are seriously examining the matter of direct access to large bikes that he raised to determine whether measures could be implemented to stop people from rapidly accessing very large bikes because sadly a disturbing minority of their riders are killing or seriously injuring themselves.

Andrew Miller: I congratulate my hon. Friend on the leadership that he has given on the subject. May I follow on from the point made by my hon. Friend the Member for Coventry, South (Mr. Cunningham) and ask the Minister whether he is in constant contact with Government Departments—not only the Department for Education and Skills, but the Home Office and the Department of Health—and other key players to help to bring together a strategy that embraces all aspects of the risks on our roads?

David Jamieson: My hon. Friend will probably know that the strategy is the three E's: enforcement, education—I have forgotten what the other one is, but it will come to me in a moment—[Laughter.]—and engineering. Those three things involve not only our Department, but all Departments. We work closely with the Department for Education and Skills on issues relating to school transport and we are also working with the Home Office on enforcement and offences, so other Departments are involved. The good work that is done by local authorities and other road safety organisations also contributes to the improvement in safety on our roads.

Andrew Murrison: The A36 in my constituency is rightly known locally as death valley. Will the Minister acknowledge the safety case for the long-awaited Codford to Heytesbury improvements and fund them accordingly?

David Jamieson: I would be interested if the hon. Gentleman made that point to his Front-Bench team because it is committed to cutting most of that expenditure. I will happily examine that specific road. If he wants to drop me a line, I shall be happy to have a discussion with him.

Tees Valley Rapid Transit System

Vera Baird: What progress is being made with the proposal for a Tees valley rapid transit system.

Charlotte Atkins: The Department is aware that a rapid transit proposal is being developed for the Tees valley, but no formal bid for funding has been received.

Vera Baird: I am very pleased to have asked what I think is the first question to my hon. Friend in her new role. She is hugely welcome to the Front Bench and we wish her well. I thank her for her reply.
	Does my hon. Friend agree that such a potentially key regional project should be verified as a good tool of regeneration or abandoned—the idea has been around for a long time—by a regional transport body? Does she agree that a regional transport body working closely with a directly elected regional assembly is likely to achieve the truest focus?

Charlotte Atkins: I am grateful to my hon. and learned Friend for her kind remarks and welcome. I agree that certain decisions about transport are better taken locally and regionally. Indeed, we introduced local transport plans to encourage local authorities to plan their transport provision. Regional assemblies can help to ensure that such plans are developed throughout a region in an integrated, strategic and far-sighted way.

Frank Cook: Does the Minister agree that the provision of good-quality transport facilities is essential for economic welfare and advance? Does she also agree that the Tees valley has not really been allowed a proper voice to achieve that status in the past? Would she further agree that it might be able to improve its voice if it were granted city status, as Sunderland was?

Charlotte Atkins: Regrettably, that decision is not for me. However, Tees valley will always have a voice in the Department for Transport. I am willing to welcome my hon. Friend's constituents if they want to speak to me about that. He can be assured that that area will have a voice.

Bus Contracts

John Grogan: What plans he has to enable local councils to increase the number of quality bus contracts.

Alistair Darling: As announced in the White Paper "The Future of Transport" in July, we shall be bringing forward specific measures to assist councils and passenger transport authorities to improve bus services.

John Grogan: I welcome the development of that policy. Will my right hon. Friend give more thought to rural areas, where local councils may wish to introduce quality bus contracts in order to have more say on routes and frequency of service but, unlike urban areas, passenger transport authorities will find it difficult to introduce bus lanes or measures to deal with congestion in return?

Alistair Darling: I understand my hon. Friend's point about rural bus services. I have said many times that although quality bus contracts might be the answer, and we have shortened the time that it would take to put them in place, there are many good examples of rural bus services that have been provided, such as dial-a-ride and more specific services as opposed to the conventional bus service. Such schemes work well when a good local authority and a good bus company work together. That is the best way to provide bus services in rural areas. They are, of course, offered significant support by the Department.

Chris Grayling: May I invite the Secretary of State to visit Stoneleigh in Worcester Park in my constituency where many pensioners are hugely frustrated because the Government allocate substantial funds to Transport for London and little to the counties outside London, which means that their neighbours only a few hundred yards away are entitled to free travel on public transport and they are not?

Alistair Darling: It is a matter for the local authority to help people. There are countless examples of Labour authorities up and down the country that help with concessionary bus fares. The hon. Gentleman's constituents might want to draw a conclusion from that.

Clive Betts: I thank my right hon. Friend for agreeing to review bus services in Sheffield. Will he join me in congratulating Sheffield city council on launching a major public consultation on the public's views of their local bus services, although it is likely to show that they think that they are bad and getting worse? Does he accept that in undertaking the review the Government will not begin by ruling things out, but will have a genuine open mind and consider all possible ways of improving local bus services so that more people use them, which includes making them more frequent and reliable?

Alistair Darling: Of course we always look at such things with an open mind. If Sheffield, or anywhere else for that matter, has proposals that would encourage bus use, we will see what we can do to support them, as we set out in the White Paper. I remind the House that I said in the summer that the Government are prepared to make additional sums available, especially to the larger transport authorities, provided that the proposed measures will genuinely increase the number of people using buses or other forms of public transport. We are not going to say, "Okay. You can regulate the buses again because you haven't made the thing work in the past." There are too many examples of where councils could do more with the local bus companies, and it is up to them to show the initiative that many other local authorities have shown up and down the country. If Sheffield comes up with proposals, we will of course look at them.

John Randall: Has the Secretary of State taken advice, or is he able to offer advice, on bus request stops and hail-and-ride services in respect of the new disability regulations?

Alistair Darling: The answer to that is no, but I shall certainly consider the matter. It would help if the hon. Gentleman could let me know what he has in mind and what he thinks the difficulty is.

Rail Services (Milton Keynes)

Phyllis Starkey: What recent discussions the Department has had with the Strategic Rail Authority on rail services from Milton Keynes.

Alistair Darling: I have regular meetings with the chairman and other senior members of the SRA to discuss a range of railway matters. May I also draw the attention of the House to the fact that I made a written statement this morning confirming that we intend to reduce the number of railway franchises in line with the proposals I made in July in the White Paper on the future of the railways?

Phyllis Starkey: May I draw the attention of the Secretary of State to the fact that the new timetable introduced on 27 September following the SRA's decisions has resulted in a huge deterioration in the quality of rail services to and from Milton Keynes? Commuters now experience very much longer journey times, particularly from Bletchley, but also from Central Milton Keynes. The small number of Virgin trains that now stop at Milton Keynes in the morning are extremely overcrowded while enormous number of Virgin Pendolinos rush half-empty through the station in both directions. The fact that Virgin trains no longer stop at the station creates huge problems for businesses in Milton Keynes whose employees commute to the city from London or the north. Will my right hon. Friend ask the SRA to review its decision, and will he look at ways of increasing capacity at Milton Keynes by extending the platform at Bletchley so that it can take 12-carriage trains and—

Mr. Speaker: Order. I think that the hon. Lady should apply for an Adjournment debate.

Alistair Darling: I shall resist the temptation to reply to an Adjournment debate. My hon. Friend has raised these matters with me before, and I understand her concern. The SRA was anxious to ensure that the new Pendolino trains did not become overcrowded, and also that timetable for trains to the north-west was robust. New Silverlink trains will be available next year, which will increase capacity by about 5,000 seats. However, I will look further at my hon. Friend's concerns. As I said earlier, I was at Milton Keynes station last week, and saw something of the problems that she has encountered. I shall look at the issue and get in touch with her. Although there will be additional train capacity next year, there are no easy answers, because there is tension between long-distance and commuter trains.

Tim Boswell: Will the Secretary of State also bear in mind the fact that Milton Keynes serves as the railhead for many residents of south Northants and adjacent rural areas? Does he accept that they, too, are concerned about the practical implications for anyone attempting to commute or travel to London through that station?

Alistair Darling: I am aware of that issue. When I was at Milton Keynes station I was en route to the hon. Gentleman's constituency, so I understand the point that he is making. As I told my hon. Friend the Member for Milton Keynes, South-West (Dr. Starkey) a few minutes ago—[Interruption.] I think that the hon. Member for Daventry (Mr. Boswell) did know about that visit. We must try to ensure that we have adequate commuter services from Milton Keynes, as they are important not just for the city itself but for the surrounding area.

Greg Knight: Is the Secretary of State aware that a train service of historic and national significance originates at Milton Keynes and is used by Her Majesty the Queen? Will he confirm that he has no short, medium or long-term plans to scrap the royal train?

Alistair Darling: Not only can I do so but I can report that only recently the royal family confirmed that it wished to maintain and use the royal train. I am sure that it will continue to do so.

Uninsured Drivers

Annette Brooke: What steps his Department (a) has taken and (b) plans to take to reduce the number of uninsured drivers on the roads; and if he will make a statement.

David Jamieson: Uninsured drivers on our roads are a menace. We have taken a number of steps to bear down on uninsured driving, including setting up a review of motor insurance arrangements in the United Kingdom by Professor David Greenaway. His report was published on 11 August this year, and we are now taking urgent measures to implement its recommendations. We are working closely with the insurance industry, and we now plan to introduce legislation, further education and enforcement programmes to force uninsured drivers from our roads.

Annette Brooke: Does the Minister acknowledge that fines can be as low as £150, which, in many cases, is less than the cost of insurance? Liberal Democrats have long called for higher penalties, as recommended by Greenaway. What will the Minister do as soon as possible to clamp down on the million and more motorists who are creating danger every day and cheating the law-abiding motorist?

David Jamieson: While the Liberal Democrats are calling for action, the Government are taking action. The top end of fines for being uninsured is very high indeed, and we are introducing a range of measures, we hope in legislation, to give power to the police, for example, to seize a vehicle at the side of the road and, if necessary, have it destroyed if someone is driving while uninsured. We are also looking at other measures to improve the insurance database and give police access to it so that they can use automatic number plate-reading cameras to take pictures and identify people who are not only untaxed but uninsured. Recent action that we have taken has considerably reduced the number of uninsured drivers on the road, and we want to drive those figures down further.

Lindsay Hoyle: I am sure my hon. Friend is aware of the great campaign for the introduction of insurance discs, which would have the same benefits as tax discs. Is it not time to come into line with other countries that have seen the advantages of insurance discs, which motoring organisations and police alike believe would be of benefit to them?

David Jamieson: The Republic of Ireland has an insurance disc system and it has twice the rate of non-compliance. Professor Greenaway looked at the matter closely and discussed it widely throughout the industry with interested parties. It is not one of the recommendations that he made. I should point out to my hon. Friend that there are people who drive around without a tax disc. It does not stop them doing so. What does stop them is being spotted, with the fines in place and being enforced. We want a similar system for the insurance industry as well, so that a number plate camera can pick up whether a vehicle is insured or not. That will be a much more powerful way of making sure that people cannot get away with driving while uninsured.

Tim Yeo: Will the Minister confirm that as many as one driver in 20 drives without insurance and that the cost of those irresponsible drivers to the responsible motorist exceeds £500 million a year? Given that he has belatedly adopted one of the key planks in our policy to deal with uninsured drivers, will he explain a little further how toughly he proposes to enforce the new approach? How many vehicles a year does he expect will be confiscated and destroyed if repeat offenders are discovered to be driving without insurance?

David Jamieson: We will introduce legislation in the House, I hope, in the next parliamentary Session, which will give the police the power to seize and destroy such a vehicle. I look forward to the hon. Gentleman's support for that measure. But we are taking a variety of measures, including enforcing more rigorously the vehicle excise duty—the car tax. Hundreds of thousands more vehicles are taxed in this year alone. For a vehicle to be taxed, it must be insured. In the next few weeks we will produce figures that show a substantial increase in the number of taxations and therefore in the number of people who have insured.

Vandalism/Antisocial Behaviour (Rail Stations)

Huw Edwards: If he will meet representatives of the British Transport police to discuss how to combat vandalism and antisocial behaviour at railway stations.

Tony McNulty: Over the past year I have had regular meetings with the chief constable of the British Transport police. Next week I am to meet Sir Alistair Graham, the new chair of the British Transport police authority. Among other things I will discuss what action BTP are taking to reduce crime on the railways, including vandalism and antisocial behaviour.

Huw Edwards: Will my hon. Friend acknowledge that vandalism and antisocial behaviour are a depressing feature of many of our local stations, especially those that are unstaffed, like Chepstow in my constituency? When I recently met representatives of Arriva Trains to discuss the problem, they informed me that since British Transport police are responsible for policing railway stations, their resources are so limited, especially in south Wales and outside the main cities, that the job cannot be adequately done. When my hon. Friend meets the chief constable of British Transport police will he see whether a strategy can be devised whereby the policing responsibility can be effective between BTP and local police stations in order to combat this serious problem?

Tony McNulty: I undertake to raise those matters with Sir Alistair Graham when I see him next week. Although there has been huge success in tackling graffiti, vandalism and antisocial behaviour in cities and many urban areas and key interchanges, more needs to be done at some of our more rural railway stations. I shall raise with Alistair Graham the specific issues relating to Wales, and when I have something constructive to tell my hon. Friend, I shall do so.

John Horam: From the Minister's reply, which was very interesting, he seems to accept that the hon. Member for Monmouth (Mr. Edwards) raised an important point. The problem is antisocial behaviour and vandalism not just in railway stations, but around railway stations. A particular problem is open-access stations, such as Pett's Wood in my constituency. There are steps that can be taken—not just the introduction of ticket barriers, but proper staffing, as the hon. Member for Monmouth mentioned. I find train operators resistant to such measures. They speak about the cost and say it is a matter for the police and so on. Will the Minister write to train operators and stress to them the importance of doing something about antisocial behaviour in and around railway stations?

Tony McNulty: The hon. Gentleman's first point is certainly right, and I recognise that my hon. Friend the Member for Monmouth raised a serious issue. Much is being done in urban areas both in and around stations. In London, the Metropolitan police and community support officers have brigaded both the approaches to key interchanges and key interchanges themselves. The hon. Gentleman makes some fair points, which I shall pass on to the train operating companies and British Transport police.

Airport Security Systems

Peter Pike: What monitoring his Department undertakes to check the effectiveness of airport security systems.

Alistair Darling: Although the industry is responsible for implementing the appropriate security measures, my Department carries out a regular programme of compliance monitoring visits.

Peter Pike: I thank my right hon. Friend for that answer. In this day and age, airport security is unfortunately essential, and that job is not always easy for workers to perform. As well as his Department's independent monitoring of airport security, we should ensure that all airports follow best practice. Does he agree that photographing all passengers, which occurs at Gatwick and Manchester airports, is a good idea that should be introduced into all UK airports?

Alistair Darling: I agree with my hon. Friend that it is important for the Department to continue to inspect security regimes. Airport security is a fact of life and it will remain so for the rest of our lives. Photographing passengers was introduced at Manchester and Gatwick because of those airports' particular layouts, and I suspect that it will be extended to other airports, in which case newer and sometimes more thorough security measures can be introduced at the same time. We will keep the matter under review.

David Taylor: Security at airports, including East Midlands airport in north-west Leicestershire, is important. Will the Secretary of State acknowledge that in addition to the security offered by airport operators, civil servants, Customs officers and others have an important subsidiary role to play? Does he share the concerns of those people who have contacted me from East Midlands airport that the reductions in staff associated with the Chancellor's plan might imperil security?

Alistair Darling: I am not sure that those fears are particularly well grounded. The Chancellor's proposed reductions in civil service numbers are independent of security considerations. As far as security is concerned, we make sure that adequate security cover exists at each airport. Such matters are reviewed from time to time, but the Chancellor's proposals on Customs and Excise officers are not related to safety. If my hon. Friend has a particular concern, however, I will, of course, be pleased to hear from him.

Fuel Prices (Haulage Industry)

Bill Wiggin: What recent representations he has received about the effect of fuel prices on the competitiveness of the road haulage industry.

Alistair Darling: The Government have regular discussions with the haulage industry through the Road Haulage Forum, and meetings with the Road Haulage Association and the Freight Transport Association.

Bill Wiggin: The AA says that the average fuel price is 83.5p per litre in the UK—it is 84p per litre in Wales—but it is 61.85p per litre in France. The Government take 71.3 per cent. or 59p per litre in tax, which is 2p less than the French pay in total. The UK fuel price has increased by 0.7p per litre in the past month and is the most expensive in the EU. With such a tax burden, how does the Secretary of State expect UK hauliers to remain in business?

Alistair Darling: The hon. Gentleman no doubt knows that in broad terms successive Governments have taken the view that a certain proportion of expenditure should be financed by fuel taxation. He also knows that anyone who conducts a business in France must pay costs that British hauliers do not have to pay, such as employment costs, insurance costs and social costs. I am surprised that the hon. Gentleman advocates that course of action.

David Chaytor: Given that the United Kingdom is shortly to become a net importer of oil and that we face the global peak of oil production by the end of the decade, is not the real issue for competitiveness to increase the fuel efficiency of large vehicles and to encourage the use of more biofuels?

Alistair Darling: I agree with my hon. Friend. Even were there limitless supplies of fossil fuels, which of course there are not, it would still be necessary, for competitive and for good environmental reasons, to improve the fuel efficiency of vehicles. Engines generally are cleaner and much more efficient than they were 10 or 20 years ago. The Government support that trend and want to encourage it—the road haulage modernisation fund is one way in which we do so. There are some very good examples of new technology that are improving matters.
	Looking further ahead, we need to invest in the possibilities of using fuels such as hydrogen and liquefied gas. Many initiatives are being financed by the Government and supported by the industry, all of which are absolutely necessary in their own right, as well as for the obvious reason that fossil fuels are, by their very nature, finite.

Pete Wishart: Can the Secretary of State explain why Scotland's hauliers have to endure higher fuel prices than the rest of the United Kingdom? What he is doing to address that?

Alistair Darling: On the basis of my experience, I can tell the hon. Gentleman that if he travels around Scotland he will see a wide range of fuel prices. Indeed, in the city in my constituency petrol is cheaper than in many parts of England. The hon. Gentleman sometimes looks at the United Kingdom through a set of blinkers that is extremely narrow even by his standards. He cannot get away with this nonsense that everything in Scotland is bad and everything in England is good, because the facts do not support that argument.

Patrick McLoughlin: This is the manifesto on which the Secretary of State fought the last general election:
	"We will . . . ensure that hauliers from overseas pay their fair share towards the cost of our roads."
	Many British hauliers feel that they are unfairly treated compared with their European competitors who trade in this country. What is the Secretary of State doing about implementing his manifesto commitment?

Alistair Darling: I shall tell the hon. Gentleman what we are doing. We will introduce the lorry road user charging regime, which is under development at the moment—[Hon. Members: "When?"] Conservative Members say, "When?", but they always give the distinct impression that they are dead against it. It is supported by the industry and is on track to be introduced in 2007–08. I believe that it will be a far better way of charging lorries and, as I have told the House many times, there is great potential for taking the same approach to general road pricing if that proves technically possible. That is what we are doing, and I am glad that the hon. Gentleman now supports us.

Martin Smyth: The Secretary of State referred to the way in which taxes in France work. Does he agree that the remoter areas of the United Kingdom suffer because the competitiveness of their manufacturing industry is hit as well as the road haulage industry?

Alistair Darling: I understand the hon. Gentleman's point. I am aware of the concern in Northern Ireland about the fuel price differential between it and the Republic. A whole series of issues must be taken into consideration in relation to competitiveness, including labour costs, the availability of skilled labour, and the general environment for doing business. The hon. Gentleman will be well aware that many businesses in Northern Ireland are successful because of the amount of investment and people's determination to improve their economic circumstances. I readily agree that fuel tax is a consideration, but there are many others.

Tim Yeo: Will the Secretary of State confirm that the rise in fuel duty since July alone, which was mentioned by my hon. Friend the Member for Leominster (Mr. Wiggin), is costing the average haulier £5,000 per lorry? As fuel in Britain now costs at least 20p per litre more than in several other European countries, why have not the Government absolutely ruled out the 1.9p per litre duty increase that the Chancellor merely postponed from September until November? Why are they going to dither around for another four years before tackling the unfair competitive advantage that continental hauliers have over their British counterparts?

Alistair Darling: First, fuel duty has not increased since July. Fuel prices have gone up but that is because of what is happening to world prices. Progress is being made on lorry road user charging. However, given successive Governments' difficulties with big IT projects, it is important that we get the detail right. We are working closely with the industry to introduce lorry road user charging.
	The hon. Gentleman asked about fuel duty. The Chancellor made it clear that he will revert to that when he presents his pre-Budget report in the autumn.

Rail Network (South Yorkshire)

Helen Jackson: What plans he has to bring about improvements to the rail network in South Yorkshire.

Tony McNulty: Sheffield station will receive a major refurbishment, which is expected to be completed in 2007. The midland main line and transPennine express franchises include the provision of new rolling stock, leading to increased capacity, improved service quality and improved performance and reliability.

Helen Jackson: I thank my hon. Friend for his answer. I have asked at previous Question Times about better links from South Yorkshire to major cities such as Manchester and Leeds. However, although the enhanced faster service to Leeds is welcome, it has been established at the expense of stopping trains between towns in South Yorkshire. That is serious because there is a huge job improvement programme in south Yorkshire through objective 1 areas, and public transport is simply not keeping pace with the jobs that are being created. Will my hon. Friend reconsider investment that allows services to Chapeltown, Elsecar and the other stations that are losing services to be reinstated, as well as maintaining the fast link to Leeds?

Tony McNulty: I take my hon. Friend's point. There needs to be a balance between connections to various cities in the north, job opportunities and the stopping services. We keep that constantly under review, both in the wider scheme of things in our general strategy and through rail substitution and other matters in the local transport plan.

Richard Allan: Does the Minister support the efforts of the Hope Valley rail users group to get more evening train services from Manchester to stop at Dore station in South Yorkshire to relieve the appalling overcrowding on the evening services on that line?

Tony McNulty: The honest answer is no, because I do not know anything about that. Let me find out some more in the context of the new transPennine express franchise and I shall happily get back to the hon. Gentleman.

John McDonnell: In examining the available resources for improvements in the region, will my hon. Friend reconsider the escalating costs of the tendering process for Northern Rail? In a parliamentary answer in June, he estimated that the cost had risen to £3.9 million. Further delays mean that the cost will have increased again. My hon. Friend could avoid those costs by implementing Labour party conference policy to bring Northern Rail back into the public sector.

Tony McNulty: I understand that the Strategic Rail Authority let the northern franchise at 11 o'clock this morning. In the context of the broader issue, whatever happened at the party conference, the Secretary of State made clear the Government's position on rail in the two White Papers that were issued in July. That is the way in which the Government will take the matter forward.

Rail Network (Disabled Access)

Jon Trickett: If he will make a statement on disabled access for users of electronic mobility scooters to the rail network.

Charlotte Atkins: Scooters are generally not considered to be suitable for carriage on trains. That is because of concerns over size, weight, manoeuvrability and stability. However, some train operators will carry smaller models. I shall place a copy of my letter of 13 October to my hon. Friend in the Libraries of both Houses.

Jon Trickett: I thank my hon. Friend for her answer. Mr. Gill, my constituent, was recently prevented from making a journey on GNER because his scooter was not considered suitable. He is one of several thousand constituents who are disabled. Will my hon. Friend continue to keep the matter under review as technology changes and develops and scooters become smaller and lighter? Is it possible to convene a meeting with the rail operating companies and others to ascertain whether the issue can be pushed forward at a later stage?

Charlotte Atkins: I certainly will. A recent trial involved South West Trains attempting to board a range of scooter models on different sorts of trains, and it showed the difficulty of a single policy on motorised scooters. In the light of new scooter availability, some train operators are re-examining their current policies to allow smaller scooters on to their trains. We are reviewing the legal position of scooters and gathering views from stakeholders about current laws on their use.

Archie Norman: Does the Minister recall the Transport Select Committee saying that there was not much point in spending billions of pounds making trains accessible if disabled people could not get on to the platforms in the first place in order to get on to the trains? Is she aware that the then Minister of State, the hon. Member for Pontypridd (Dr. Howells), wrote to me in June to say that there would be a
	"nationally prioritised, ring fenced Access for All fund",
	which would start to address this problem, on which the Government would consult in the autumn? It is now autumn, so will the Minister give the House an update on how the consultation in going and on how large the fund is going to be? What hope can she offer to my disabled constituents in west Kent, where there is not a single disabled-friendly station?

Charlotte Atkins: I am not aware of the statement that my hon. Friend made in June. However, we are looking at the whole issue of accessibility and we are committed to ensuring that disabled people have access, but there is no law to require train operating companies to carry scooters. As the technology and the models improve, however, I am sure that there will be a way of ensuring that disabled persons can use trains more effectively. This is a priority for the Department for Transport and I shall certainly make it a priority for me.

Anne Begg: If the Minister looks at early-day motion 1740, she will find that in it I condemn Southern for still operating slam-door trains, on which people in wheelchairs have to travel in the guard's van. That happened to me last Tuesday, when I boarded a train at London Bridge and discovered that that was the only way in which I could travel. I was going to Dorking, but I could not get off the train at Dorking because that station is not accessible, so I had to get off at Redhill. These slam-door trains are old rolling stock, and this is a barbaric practice. I was not in a big scooter; I was in a very small, lightweight wheelchair. The guard's van was little better than a cattle truck and, in this day and age, we should be doing something to stop this practice.

Charlotte Atkins: I certainly regret that incident. I have seen my hon. Friend's early-day motion and I sympathise with her. It is ridiculous, in this day and age, that any lady or gentleman should have to travel in a carriage that is almost a cattle truck. That is unacceptable. Obviously, as the new rolling stock comes on stream those arrangements will be ended, but my hon. Friend has made her point very strongly. I am sure that no operating company would want there to be a repeat of that experience, and that they would want to assure her and her colleagues that it will not happen again.

James Gray: The Minister said that the train operating companies have no legal responsibility to carry powered scooters. How, then, does she explain the fact that First Great Western has told my constituent, Mr. Graham Coe of Downing street, Chippenham—he lives at No. 67, not No. 10—not only that he may not take his scooter on the train, even though he has done so successfully for the past six years, but that he may not take it on to the platform for fear that he might crash into other passengers? First Great Western tells me that this is not its fault and that the Department for Transport was looking into providing kitemarks for scooters, but that it has now stopped doing that. Will the Minister assure First Great Western that it is her intention to allow constituents such as Mr. Coe maximum access to First Great Western trains, and that she will do whatever she can to avoid this perverse consequence of the Disability Discrimination Act 1995?

Charlotte Atkins: We will certainly look at all those issues, but it is clearly a matter for the train operating company whether it allows access. I would be interested to see the hon. Gentleman's correspondence on that matter, and if he shows me a copy of it I will certainly respond to him in detail.

Flight Paths

Andrew Selous: If he will make a statement on the criteria for changing airport flight paths.

Charlotte Atkins: Airport flight paths are changed through the Civil Aviation Authority's airspace change process. The CAA sets out the criteria for assessing airspace change proposals in its civil air publications 724 and 725, which are available on its website.

Andrew Selous: Luton airport's option 3A flight path proposal, if accepted, would leave Leighton Buzzard as the only town on the whole flight path to be directly overflown. If Luton airport is to be allowed to expand from 7 million to 28 million passengers a year, will the Minister ensure that such expansion would be allowed only along flight paths that do not overfly major growing towns such as Leighton Buzzard? If the directorate of airspace policy allows option 3A, will the Minister call in that decision, as it would be wholly unacceptable to the residents of Leighton Buzzard?

Charlotte Atkins: I understand that the hon. Gentleman has recently met the Civil Aviation Authority to discuss the informal consultation on proposed changes around Luton. I understand his concerns about Leighton Buzzard being overflown should the 3A proposal go ahead. At this initial stage, I agree to meet him should he want to push forward those issues. Should the matter come to me later, however, I could not meet him at that stage.

CABINET OFFICE

The Chancellor of the Duchy of Lancaster was asked—

Government Services (E-delivery)

Anne Begg: What plans he has to develop the electronic delivery of government services to improve access for disadvantaged groups.

Ruth Kelly: The new Directgov site is the main access point for the electronic delivery of government services. It draws together a comprehensive range of information and services from the whole of government, making it easier for all people to access. "Disabled People and Carers", one of the launched sections of Directgov, focuses on the needs and services required by disadvantaged groups.

Anne Begg: I thank the Minister for that reply. The Disability Rights Commission has produced guidelines to ensure that web design in particular is as accessible to disabled people as possible. Those consist of fairly easy-to-follow instructions on how to make web pages clearer and easier to use. Will the Government set a standard ensuring that all Government websites comply with those guidelines, to make sure that everybody in society can access Government services?

Ruth Kelly: My hon. Friend is absolutely right to draw attention to the need to make websites as accessible as possible to disabled users. That is why, in 2001, the Government adopted those guidelines. Clearly, however, there is a long way to go. About half of Government websites are currently compliant with the guidelines, which compares favourably with the private sector, in which about one in five websites are compliant. As of this month, however, the Government have said that all websites with "gov.uk" attached to them must be compliant to be able to use that in their address.

Richard Allan: I welcome the Minister to her new position. Will she, at an early date, discuss with the new head of the e-government unit the development of standard procedures for the audit of e-government services at both local and central Government level, so that we can understand which social groups are using them and, importantly, which social groups are not using them and what the barriers are to access?

Ruth Kelly: The hon. Gentleman is absolutely right to draw attention to the fact that there are key barriers to encouraging people to use the internet and digital technology. For example, we already know that income plays a great role, with only 12 per cent. of the lowest income group having home internet access, compared with 86 per cent. of the highest income group. Age also plays a big role, as does motivation. Of course, the head of the e-government unit, Ian Watmore, who has recently taken up his post, has as part of his responsibility the encouragement of the transformation of e-government services. As part of that project, we will examine in great detail the barriers that remain to web take-up.

Civil Service (Disabled Representation)

Lawrie Quinn: What action is being taken to ensure that people with disabilities are represented across the civil service.

Ruth Kelly: The Government are committed to increasing the representation of disabled people in the civil service. The latest published figures show that 4.3 per cent. of civil servants are disabled, which is up from 1 per cent. in 1998. Action to increase representation of disabled people includes a bursary scheme for disabled staff with high potential and a summer placement scheme to encourage disabled applicants to join the graduate fast stream.

Lawrie Quinn: Everyone in the House would commend the Government for the progress that has been made to encourage people with disabilities to come into the civil service. The Minister's ambition is surely to make sure that the civil service reflects the composition of society as a whole. Can she say a little more about how she proposes to ensure that people who are already in the civil service can develop their fullest potential, and that the top ranks of the civil service also reflect the composition of wider society, while obviously also being based on merit and not just on quota or any other device?

Ruth Kelly: My hon. Friend is right to draw attention to the challenge that we face in trying to open up the senior civil service, in particular, to disabled people. In that context the challenge is much greater, and progress much slower.
	One of the most important things that we can do, through the summer placement scheme, is to give disabled people access to work placements for six to eight weeks, which enables them to gain work experience similar to that of fast-stream applicants. However, we must also change the culture of the senior civil service so that it recognises the contribution made by disabled people. I believe that the Cabinet Secretary has committed the service to that change in its cultural approach.

Martin Smyth: I welcome the improvement in numbers, but can the Minister tell us how much of it has taken place in the Department of Health and its personal social services division, which ought to be leading the way in this regard, and which Departments may be lagging behind?

Ruth Kelly: In the drive to include the whole civil service in this initiative, it is of course the Cabinet Office's responsibility to set best practice guidelines, change the organisational culture of the service and encourage people to declare themselves disabled. We know that people are reluctant to do so when they have to name themselves. In addition, however, each Department must take up the challenge. The Cabinet Office is committed to organisational changes and is encouraging other Departments to introduce them, but I will draw the hon. Gentleman's specific comments to the attention of the Minister involved.

Public Appointments (Diversity)

Keith Vaz: What steps he is taking to promote diversity in the appointments he makes.

Alan Milburn: The Duchy of Lancaster has a policy of equal opportunities in respect of both internal and external appointments. When dealing with magisterial appointments, advisory committees follow the directions prepared by the Department for Constitutional Affairs. I have ensured that, wherever appropriate, best practice and the Cabinet Office guidelines are followed.

Keith Vaz: I congratulate my right hon. Friend on his appointment to his new post and welcome his statement, but lament the fact that of the 191 appointments made by his predecessors, only seven have been of Asian origin. I cannot give him the number of appointees of Afro-Caribbean origin, because the Department will not tell me what it is.
	Does my right hon. Friend not agree that although the political will is there—as expressed by him—the implementation is not? What steps will he take, now that he is vigorous and fresh in his new post, to ensure that the diversity agenda is expressed in the appointments that he makes?

Alan Milburn: I am extremely grateful for my hon. Friend's support. I suspect that I shall need it.
	Last week I met Sir Michael Bunbury, chairman of the Duchy Council, and Paul Clarke, chief executive and clerk of the council, to discuss precisely those issues. I reiterated, as I reiterate to the House now, the importance of securing a reasonable representation of the public in, especially, the appointment of magistrates. Over the last few years there has been a 73 per cent. increase in the number of Duchy appointments of magistrates from ethnic minorities, although there is clearly more progress to be made. My hon. Friend will also be pleased to learn that phase 2 of the magistrate shadowing scheme, which is intended to attract more magistrates from the black and ethnic minority community, has targeted 12 areas across the country including not only Lancashire but, I am happy to say, Leicester.

Julian Lewis: On behalf of the Opposition, I welcome both Ministers to their new responsibilities—although they were formerly discharged by a single Minister at non-Cabinet level. May I reassure the Minister for the Cabinet Office in particular that, while she may have only half the job title, I am sure that she will be doing all the work?
	What advice has the Chancellor received from Alastair Campbell on the question of diversity of appointments, given that official calls to Alastair Campbell are now directed to a Cabinet Office secretary employed at No. 10 Downing street? Is this one more diverse appointment that has yet to be reported publicly?

Alan Milburn: I am extremely grateful to the hon. Gentleman for his support. With him, it is not so much a question of the poisoned chalice as the poison; however, I am grateful—one takes what one can get in this job. [Interruption.] As he says, I am sure that there will be a lot more to come, but if I were him I would take heed of one piece of advice. [Interruption.] I am just about to answer the question, if the hon. Gentleman will pipe down for a moment. He says that a single Minister previously did this job, and he and his hon. Friends have made the absurd allegation that the current post is a waste of public money. That is a bit rich given that, according to my figures, the Opposition's Short money has been increased by 400 per cent. since 1997. Given the performance of the hon. Gentleman and rest of the Opposition, one wonders what they are doing with it.

Congenital Heart Disease (Exemption from Prescription Charges)

Ivan Henderson: I beg to move,
	That leave be given to bring in a Bill to exempt those who suffer from congenital heart disease from prescription charges.
	The Government have achieved a lot in drawing attention to the importance of a healthy lifestyle. They can take much credit for the fact that there is far greater public awareness of the need to make lifestyle choices in order to avoid heart disease. I have tabled this ten-minute Bill on behalf of a group of people for whom the ability to improve their health by pursuing a healthy lifestyle is not an option. Those born with complex congenital heart disorders face a life in which ill fortune has decided that no amount of exercise, healthy diets or avoidance of unhealthy living will allow them to live free from the rigours of a heart that does not function properly.
	Avoiding cigarettes, alcohol or junk food will not offer them the level of health that most of us take for granted. Their condition denies them the choices that we enjoy about how we live our lives, and how much importance we place on lifestyle. Most of us make conscious, informed decisions as to whether we smoke or drink, or take regular exercise to try to keep our hearts in good shape. Those born with a congenital heart disorder do not share those choices.
	Congenital heart disease is a heart condition resulting from an abnormality in the heart's structure or function that is present at birth. Most congenital heart conditions occur because the heart or its valves and vessels are not properly formed. Additional defects such as holes between the chambers of the heart may also be present.
	The House will be aware of the Grown Up Congenital Heart Patients Association. GUCH is a charity that was formed 10 years ago by Professor Jane Summerville, who was then a member of staff at the Royal Brompton hospital, and is the only national charity run by patients on behalf of patients. One of my constituents, Stephanie Tyrer, is a founder member of GUCH, and she is listening very intently as I present this Bill.
	I wish to make the House aware of Stephanie's life, as it is typical of those with a complex congenital heart disorder. It is a story of the strength, determination and courage that is necessary if those with such a disorder are to reach adulthood and face the enormous difficulty of simply trying to live a normal adult life. When Stephanie was born, her parents were told to take her home and enjoy her while they had the opportunity. At only 18 months old, she underwent major surgery that was designed to prolong her life. Remarkably, that procedure is still functioning 35 years later.
	When Stephanie reached school age, her parents were actually asked if it was worth educating their daughter, given that she was terminally ill. During her teenage years, it became necessary for oxygen to be administered at home, and shortly after her 18th birthday, Stephanie suffered her first heart attack. As a result of constant infections and hospitalisation, she was forced to leave school before taking her A-levels because she was too ill to continue her education. What a tragedy for a person who later achieved membership of Mensa.
	In spite of her ill health, Stephanie has dedicated her life to aiding others. As a result of her charity work through Rotaract, Rotary International awarded her the Paul Harris fellowship—the first time that a member of Rotaract achieved this honour. Stephanie is also a keen environmentalist. She has campaigned with me, and—it is only fair to say—against me when our views on a particular environmental issue have differed. She is a highly intelligent, extremely determined and totally motivated woman; if she were not, her condition would have made it impossible for her to achieve a fraction of what she has achieved.
	Stephanie lives a few hundred yards from me in my Harwich constituency. I could not begin to imagine how much the effort of coming to Westminster today has taken out of her, and how many days it will take for her to recover from that exertion. It is a journey that does nothing more than irritate myself and fellow Members if our trains are delayed.
	Stephanie is one of around 149,000 inhabitants of the United Kingdom who suffer from a congenital heart disorder. The particular significance of those represented by GUCH is that they have become adults and have to face adulthood in a society that is ill prepared to offer them the support that they require and deserve. By that, I am not suggesting that they are denied medical facilities, but those with a complex congenital condition are often denied the opportunity to work, to obtain insurance, to take out a mortgage that would allow them to own their own home and many other basic opportunities that we take for granted.
	Those who are fortunate enough to obtain the basic independence and dignity of employment have to pay prescription charges for the drugs that are necessary to keep them alive. That is the specific point that my Bill is intended to address. Since I tabled it, I have received a letter from a constituent, Benjamin Dale, who provides a clear example of the inequality that currently exists. His sister suffers from diabetes and receives her prescriptions free of charge. He has congenital heart disorder and is subject to prescription charges. I believe that those suffering from a congenital heart disorder deserve the same Government support. Their condition does not result from poor lifestyle choices and it most certainly does not result from a lack of willingness to help themselves. They have simply been born with a congenital heart disorder and I believe that they should not have to face the additional burden in adult life of finding the money to pay for the medication that is necessary to keep them alive. Thanks to the availability of pre-payment prescription certificates, the cost can be restricted to £91.80. If such certificates were not available, the cost could easily exceed £500. In my opinion, no cost should be incurred.
	In the year 2000, there were 149,000 adults in this country with a congenital heart condition and that number is predicted to rise to 185,000 by the year 2010. In the past, only one in five children born with such a condition achieved adulthood but now, thanks to better diagnosis, better facilities and a greater understanding of the condition, more than 80 per cent. survive into adulthood. It is important that the support and assistance that enables them to achieve adulthood is then tailored to provide the kind of support and assistance that is relevant to adult life.
	Around 4,500 babies are born each year with a congenital heart condition—a figure that represents approximately one in every 145 births. Every Member of the House will have constituents who suffer from a congenital heart disorder and who strive to live as normal a life as possible. The simple truth is, however, that to live as near a normal life as possible requires a strength and determination that we can only begin to imagine and everything that can be done to reduce the burden should be done. The Government have a good record of acknowledging such situations and taking the necessary action to offer assistance where possible.
	This is one such case and it is a case that does not affect a particularly large number of people. Out of the 149,000 people with congenital heart disorders, we are talking only about those who have a complex congenital heart disorder, have reached adulthood and who are eligible to pay prescription charges. Those people, represented by GUCH, deserve the support of the Government and I commend the Bill to the House.
	Question put and agreed to.
	Bill ordered to be brought in by Mr. Ivan Henderson, Mr. Stephen McCabe, Mr. Tony Clarke, Mr. Anthony D. Wright, Mr. Stephen Hepburn, Ms Dari Taylor, Dr. Howard Stoate, Bob Russell, Mr. Kevan Jones, Andrew George, Mr. John Bercow and Dr. Doug Naysmith.

Congenital heart disease (exemption from prescription charges) bill

Mr. Ivan Henderson accordingly presented a Bill to exempt those who suffer from congenital heart disease from prescription charges. And the same was read the First time; and ordered to be read a Second time on Friday 5 November, and to be printed [Bill 1641].

Orders of the Day
	 — 
	Companies (Audit, Investigations and Community Enterprise) Bill [Lords]

As amended in the Standing Committee, considered.

New Clause 1
	 — 
	Amendment of Companies Act 1985: limit on auditor's liability (No.1)

'(1) Section 310 of the Companies Act 1985 (c 6) (provisions exempting officers and auditors from liability) is amended as follows.
	(2) In subsection (2) delete "subsection" and insert "subsections".
	(3) After subsection (3) insert—
	"(4) A company may, in pursuance of such a provision, enter a contract with any such auditor to limit any liability which by virtue of any rule of law would otherwise attach to him in respect of any such negligence, default or breach of duty to an amount equal to the proportion of the total loss or damage suffered which is directly attributable to the negligence, default or breach of duty of the auditor having regard to the contribution to the loss or damage of any other person provided such contract is approved by members in general meeting".'.—[Mr. Andrew Mitchell.]
	Brought up, and read the First time.

Andrew Mitchell: I beg to move, That the clause be read a Second time.

Mr. Speaker: With this it will be convenient to discuss the following:
	New clause 2—Amendment of Companies Act 1985: limit on auditor's liability (No.2)—
	'(1) Section 310 of the Companies Act 1985 (c 6) (provisions exempting officers and auditors from liability) is amended as follows.
	(2) In subsection (2) delete "subsection" and insert "subsections".
	(3) After subsection (3) insert—
	"(4) A company may, in pursuance of such a provision, enter a contract with any such auditor to limit any liability which by virtue of any rule of law would otherwise attach to him in respect of any such negligence, default or breach of duty to an amount equal to twenty times the fees paid in respect of the audit of the company, provided such contract is approved by members in general meeting.
	(5) Where an act of negligence, default or breach of duty arises in two or more consecutive periods of account, the liability under subsection (5) shall be restricted to twenty times the average of the audit fee for the company for those periods of account".'.
	New clause 3—Amendment of Companies Act 1985: limit on auditor's liability (No.3)—
	'(1) Section 310 of the Companies Act 1985 (c 6) (provisions exempting officers and auditors from liability) is amended as follows.
	(2) In subsection (2) delete "subsection" and insert "subsections".
	(3) After subsection (3) insert—
	"(4) A company may, in pursuance of such a provision, enter a contract with any such auditor to limit any liability which by virtue of any rule of law would otherwise attach to him in respect of any such negligence, default or breach of duty to the sum of £75 million.
	(5) Where the company is a member of a group of companies the sum of £75 million shall be divided between members of the group pro rata to the audit fee charged to each company within the group, provided such contract is approved by members in general meeting.
	(6) Where an act of negligence, default or breach of duty arises in two or more consecutive periods of account, the liability under subsection (4) shall be restricted to £75 million for those periods of account".'.
	New clause 4—Amendment of Companies Act 1985: limit on auditor's liability (No.4)—
	'Section 310(3) of the Companies Act 1985 (c 6) (provisions exempting officers and auditors from liability) is amended, by adding at the end—
	"(iii) From entering a contract with its auditors to limit their liability in respect of any negligence, default or breach of duty provided such contract is approved by members in general meeting.".'.
	New clause 5—Limit on auditor's liability (No.1)—
	'The liability of an auditor which by virtue of any rule of law would otherwise attach to him in respect of negligence, default or breach of duty shall be limited to an amount equal to the proportion of the total loss or damage suffered which is directly attributable to the negligence, default or breach of duty of the auditor, having regard to the contribution to the loss or damage of any other person.'.
	New clause 6—Limit on auditor's liability (No.2)—
	'(1) The liability of an auditor which by virtue of any rule of law would otherwise attach to him in respect of any negligence, default or breach of duty shall be limited to an amount equal to twenty times the fees paid in respect of the audit of the company.
	(2) Where an act of negligence, default or breach of duty arises in two or more consecutive periods of account, liability under subsection (1) shall be restricted to twenty times the average of the audit fee for the company for those periods of account.'.
	New clause 7—Limit on auditor's liability (No.3)—
	'(1) The liability of an auditor in respect of any liability which by virtue of any rule of law would otherwise attach to him in respect of any negligence, default or breach of duty shall be limited to the sum of £75 million.
	(2) Where the company is a member of a group of companies, the sum of £75 million specified in subsection (1)(b) shall be divided between members of the group pro rata to the audit fee charged to each company within the group.'.
	New clause 8—Limit on auditor's liability (No.4)—
	'(1) The liability of an auditor in respect of any liability which by virtue of any rule of law would otherwise attach to him in respect of any negligence, default or breach of duty shall be limited to the lower of—
	(a) an amount equal to the proportion of the total loss or damage suffered which is directly attributable to the negligence, default or breach of duty of the auditor having regard to the contribution to the loss or damage of any other person; and
	(b) the sum of £75 million.
	(2) Where the company is a member of a group of companies, the sum of £75 million specified in subsection (1)(b) shall be divided between members of the group pro rata to the audit fee charged to each company within the group.'.
	New clause 10—Amendment of the Companies Act 1985: Exemption, indemnity and limits on auditor's liability—
	'(1) Section 310 of the Companies Act 1985 (c.6) (provisions exempting offices and auditors from liability) is amended as follows.
	(2) At the end of subsection (1) add—
	"; but before considering any exemption, indemnity or limit on auditor liability, the auditors shall prepare a statement of terms for the approval of shareholders and the information of employees.
	(2) A statement prepared in pursuance of subsection (1) shall—
	(a) recognise a duty of care owed to each individual who is a shareholder or employee;
	(b) recognise the auditor's duty to detect material fraud; and
	(c) set out how the audit working papers and files to which any exemptions, indemnity or limit of liability is applied will be made fully available to the listing and regulatory authorities.".'.

Andrew Mitchell: I begin by drawing the House's attention to my interests, which are declared in the Register of Members' Interests. This is an interesting, complex and much discussed Bill, and on Second Reading I specified the matters of concern that the Opposition wished to discuss in Standing Committee. The matters that we have not brought back to the House for discussion on Report today include the independent monitoring of major audits, the levy, and the unduly burdensome and onerous obligations that the Bill places on those below board level.
	In Committee, we also discussed the nature of disciplinary hearings, the effect on them of the European convention of human rights, and individuals' right to representation. The Committee divided on a number of these matters and in the votes on independent monitoring of major audits and on fair disciplinary hearings the Conservative Opposition had the support of Liberal Democrat Members. Unfortunately, we were not successful in either.
	Conservative Members forced a vote on the levy without the support of Liberal Democrat Members. We believe the levy to be very burdensome for business, and the Government have said already that they expect there to be a 400 per cent. increase in the level. I am sorry to say that we were again unsuccessful in persuading the Government to move on that matter.
	Many important matters were raised in the two days of Committee sittings, but the Minister showed herself to be unflinching, and she remained unmoved by the arguments that we presented. However, since then I have received a very decent letter from her, in which she accepted that the Opposition had identified one lacuna—as she called it—that will be put right today. Obviously we are grateful to her for that.
	Today, we shall bring to the Floor of the House the issue of auditor liability, which is covered by these new clauses. We shall then spend some time on the extremely important question of the investigatory powers available to officials of the Department of Trade and Industry. Also, given that lack of time meant that we were unable fully to discuss part 2 of the Bill in Standing Committee, a probing amendment has been tabled to allow the House to discuss the question of community interest companies, if they so wish.
	In general, the Bill is unexceptional and modest, but it does not touch on the really big question of auditor liability, even though the DTI consulted on it. The issue is rather like the elephant in the drawing room, in that the Government seem to want to ignore it.
	The Opposition's concerns about liability have nothing to do with the auditing profession, which, as far as I know, is not a specific target for the Conservative party at the next general election. Indeed, I have spoken out on the Floor of the House against various tax schemes invented by auditors that deprive the Exchequer of national insurance and tax funds to which it is entitled. I yield to no one, therefore, in my vigorous distaste for sophisticated avoidance schemes. It is wrong, for example, for a doctor earning £60,000 or £70,000 a year to pay 40 per cent. income tax while a well paid and heavily bonused American banker working in the City does not.
	The comments that I make today about auditing are not so much about the position of the auditing profession, but about the good and proper management of the UK corporate system. Apart from auditors, I can think of no other group in commercial life in Britain that can neither limit their liabilities through insurance nor by contract with their customers. Auditors, as far as I know, are the only group stuck in that position. They are in that position because of section 310 of the Companies Act 1985. The measure was first introduced in 1929—some 75 years ago—under a Conservative Government, as the Minister was kind enough to remind us in Committee, and was designed to deal with collusive relationships between companies and their auditors. Those relationships were at the expense of the shareholders and Parliament rightly decided that action should be taken.
	It is bizarre that men and women in the auditing profession are asked to take on personal risks that the insurance market, with all its resources, experience and analysis, now says are unacceptable.

Greg Knight: My hon. Friend is developing a powerful case. As I recall, the Government undertook a consultation online on the very issue of auditors' liability, which ended in March this year. If so, why have the Government not introduced any provisions in the Bill in that regard? One would have thought that they would have had ample time to have reached a conclusion on the consultation and included some provisions in the Bill, making new clause 1 unnecessary.

Andrew Mitchell: My right hon. Friend pre-empts much of my argument. It is at the heart of the Opposition's concerns about this Bill that the Government have yet to take action, which we believe is urgently needed, not in defence of auditors but in defence of the good governance of the British corporate system.

Jim Cousins: I remind the hon. Gentleman that the 1997 Labour manifesto contained a commitment to introduce limited liability partnerships. Such partnerships go a considerable way towards addressing some of the issues that he raises, and that commitment was put into law in 2000.

Andrew Mitchell: The hon. Gentleman is correct on those two points, but as I explained in Committee, they do not resolve the problems.
	There are four major auditors left. It is common ground on both sides of the House that we need more auditors to enter the market. The big four audit all of the FTSE 100 companies and not quite all of the FTSE 350. We would like more of those who audit at the bottom end of the FTSE 350 to compete with the big four. The law, as the hon. Gentleman just pointed out, allows audit firms to be limited liability companies or limited liability partnerships. That provides some protection for firms and the capital invested by the partners. However, audit firms are funded entirely by their partners' capital, which has often to be borrowed from banks or through leasing agreements. Those frequently have to be guaranteed by the partners and that is why the legislation, although welcome, is not adequate.
	I want to make two other points at this juncture. The first is to do with the law of joint and several liability and the second relates to the fact that only four firms in the world are capable of auditing our largest multinational companies.
	The law of joint and several liability means that the audit firm is liable not only for its own negligence but also for that of other parties if it is unable to pay for the loss those other parties have caused. That is what hugely increases the jeopardy facing an audit firm. As there are only four firms, we need to ensure that they survive and prosper and, preferably, that others make the necessary investment, as I have just described.

Lynne Jones: The hon. Gentleman may be aware that in the United States the Federal Reserve has banned Ernst & Young from practising for six months, which has left only three of the major companies available in the US. As a consequence, that has helped smaller and medium-sized audit firms to expand their business. Is not that the opposite approach to the one he advocates?

Andrew Mitchell: Were one of the big four to go under, or be banned, in this country, I have no doubt at all that, within a short period, major public firms, with many shareholders and many pension funds invested, would be unable to secure an audit, so it would be most unwise to draw the hon. Lady's conclusion.
	Let me give the House an example of the problem that must be addressed. Let us suppose that a major company is bankrupted because its directors either followed a disastrous strategy or had engaged in fraudulent behaviour, notwithstanding the era of shareholder activism, the work of the auditor and, of course, the new corporate governance codes that have been greatly strengthened by this and the last Government. Let us assume that the liquidator successfully sues the auditors and the directors for £1 billion—by no means the largest amount claimed by liquidators in broadly similar circumstances. Let us further assume that, between them, the directors have some insurance and some limited private assets but that that does no more than cover the legal costs and that the auditors are left with a bill for £1 billion, so they, too, are bankrupted.
	It is clear that the directors in that case are to blame; they bear the greatest responsibility for having embarked on a strategy that failed and, in the circumstances I described, for perpetrating a cover-up.

Michael Fallon: I am trying to follow my hon. Friend's argument. He said that in those circumstances the auditors would be sued, but it would be perfectly possible for them to mount a defence.

Andrew Mitchell: It would, but because of the way in which joint and several liability works—the heart of my argument—the auditors would be held responsible in the circumstances I described. A judge might conclude that the directors were 90 per cent. to blame but that the auditors were 10 per cent. to blame, as they were responsible for failing to discover what had been going on. But for the law of joint and several liability, the auditors' liability would be £100 million—a large amount, but one that the big four could probably manage, even bearing in mind that they would also have to pay legal fees, regulatory fines and so on.

Greg Knight: Could not the situation be worse than my hon. Friend describes? Under joint and several liability, the plaintiff can choose who to sue; he does not have to sue every person who may share responsibility, so it would be perfectly possible for a liquidator to mount an action against the auditors and not bother with the directors of the company.

Andrew Mitchell: My right hon. Friend, who is a distinguished lawyer, is absolutely right.

Michael Weir: I am having some difficulty following the argument about joint and several liability. Unless the auditors and the directors were in some way involved together in the situation that the hon. Gentleman describes, I do not see where joint and several liability would come into it. If, as he suggests, the directors were involved in fraudulent activity, that would be a separate matter from the auditors. Either the auditors would have to be involved in that activity, or—if my understanding is correct—they would be extremely negligent in not discovering an obvious liability. Would not that be the case?

Andrew Mitchell: I think that the hon. Gentleman's point was answered by the intervention made by my right hon. Friend the Member for East Yorkshire (Mr. Knight). Although I am reluctant to get involved in a detailed seminar on the workings of joint and several liability, my understanding is that my right hon. Friend is correct.
	The Government rightly recognise that there is a real problem relating to stability in the audit profession. More important, there is a significant threat to UK capital markets, which is, I believe, why the Government launched their consultation in December 2003. The Department of Trade and Industry seemed to be conducting that consultation sensibly until the big feet of the Treasury intervened and a compromise deal was done: the Office of Fair Trading was to produce a report, and if it said that the result of the measures that the DTI was considering would promote competition—I argue that that is the case—all would be well, but if not, the DTI proposal could not proceed.
	The OFT produced a report that was not one of its best, which commentators rightly branded suboptimal and which has led to an embarrassing stand-off between Treasury Ministers and DTI Ministers, who are red-faced and doubtless extremely irritated. The Opposition offered to go with the Minister for Industry and the Regions to a meeting with the Chancellor of the Exchequer during the Committee stage, to try to persuade him to listen to his DTI colleagues. The right hon. Lady has yet to take up that offer, but it remains on the table.
	It is the duty of the Opposition to help out. It is bad government not to proceed; it will let down the business community, which could have serious consequences for business, savers and pensioners. We face the real prospect that the big four could become the big three and that a major company would be unable to obtain an audit. The Government are behaving like a rabbit caught in the headlights and it is time that they took action. That is why we have offered every possible way out of the problem that we can think of; we tabled amendments in Committee and have re-tabled today no fewer than eight new clauses and amendments. The Minister thus has a galaxy of choice and opportunity; she can choose which measure she wants to adopt. I hope that she will either make it clear that the Government will legislate with one of our proposals as soon as possible, or that she is moving towards a conclusion and will soon be able to announce to the House a programme for action.
	New clause 1 would accommodate the Government's recent but much welcomed conversion to the concept of limiting auditors' liability on a proportionate basis by contract. Until recently, according to last December's DTI consultative document on director and auditor liability, the Government believed that the adoption of proportionate liability would need to be part of major reform of the law of negligence. As a result, the document concentrated on forms of monetary capping rather than examining proportionate liability. Although the document explicitly ruled out reform permitting proportionality, a large number of respondents volunteered the view that it was the solution that they most favoured. Indeed, it may be the widespread support for proportionality evident in the responses to the consultative document, which the Minister has most helpfully placed in the Library, that has led to the Government's new-found enthusiasm for proportionality. Whatever the reason for their conversion, it is extremely welcome.
	The current system of joint and several liability, which I have set out, allows a claimant to sue any party who has contributed to their loss for the full amount of that loss, regardless of the extent to which that party was directly responsible. It is, of course, open to that party to sue all the other people who may have contributed to the loss, but if they have no money the first party has no redress.
	To illustrate that point, I shall consider another example—the case between Equitable Life and Ernst & Young. I stress that I have no direct knowledge of the case, but I understand that the board of Equitable Life is suing Ernst & Young for £2.4 billion. I do not know whether those at Ernst & Young were negligent in their work, but, even if they were, it is inconceivable that they and they alone are responsible for the total loss suffered by the poor policyholders at Equitable Life. However, quite properly under current law, the board is suing those at Ernst & Young as though they were the only people involved. The board is doing so, I imagine, because it perceives that Ernst & Young has deep pockets.
	Let us consider what would happen if Ernst & Young were bankrupted. First, Equitable Life policyholders would probably end up with far less than they would if Ernst & Young continued in business, simply because there would be many other creditors and no future income from which to pay them. Secondly, the 7,000 people employed by Ernst & Young in the UK would lose their jobs, and its 400 partners would lose their jobs and their capital as well. No doubt, some of those people would obtain employment, but many others would not.

Jim Cousins: The hon. Gentleman raises some interesting issues about one case—I certainly do not want to dwell on the case—but, surely, those are issues for the courts, not for the House of Commons. It is not for the House to ring-fence and protect some of the actors involved with special legislation.

Andrew Mitchell: The hon. Gentleman is entirely wrong on that point. The House determines the law and the courts interpret it. It is very much a matter for the House to consider whether the laws that we pass and the regulations that we make are in the best interests of the good governance of the British corporate system.

Jim Cousins: I am grateful to the hon. Gentleman for giving way to me again, but let me make the point clear. The new clauses that he proposes would entrench protection for one of the actors in such an action. How can it be right for the House of Commons to do that?

Andrew Mitchell: The hon. Gentleman's point is a matter for debate. If he catches your eye, Mr. Speaker, he will be able to progress that argument, but I do not agree with him.
	Of greater significance—in no way do I ignore the current consequences for Equitable Life policyholders or the possible consequences for employees and partners at Ernst & Young—the bankruptcy of Ernst & Young would be a disaster for UK plc. The big four would become the big three, further restricting the choice of auditor available to our largest global companies. Ernst & Young's clients would have to find a new auditor, but it cannot be assumed that the remaining big three or the next tier of audit firms would necessarily wish to take on all Ernst & Young's clients. The shock waves from the collapse of a firm of Ernst & Young's size and stature would make the remaining firms even more risk adverse. It seems almost inevitable that some companies in the riskier segments of the marketplace would end up without an auditor. That would be a crisis for UK plc, and the Government would have the task of trying to find a solution.
	It would not be possible to create a new global firm either by dividing the remaining big three in half or by forcing some of the mid-tier firms to merge. Neither route would create a new global auditor firm, with the global reach, specialist skills and ability to invest in new technology necessary to audit the largest multinational companies that make up the FTSE 100. The Government would, however, have to introduce liability reform if there were to be any hope that the remaining big three and the mid-tier firms would take on those audits that they would otherwise reject. It is never easy or sensible to legislate in a hurry. Rather than introducing reform in the midst of a crisis, it would be far better to do so now, before the crisis erupts.

Greg Knight: Will my hon. Friend clarify a matter that may indicate whether the hon. Member for Newcastle upon Tyne, Central (Mr. Cousins) made a valid point in his intervention? If my hon. Friend is arguing that we should accept new clause 1 and the associated new clauses, that is a perfectly legitimate point to make, but if he is urging us to accept new clause 1 and is saying that its operation should be retrospective, the hon. Gentleman's point might have some merit.

Andrew Mitchell: I reassure my right hon. Friend that I am certainly not suggesting that new clause 1 should apply retrospectively. I am trying to propose a range of different opportunities to resolve the problem. New clause 1 contains the solution that the Government will eventually reach—it is certainly my preferred solution—but it is not the only way to resolve the problem, as I shall attempt to persuade the House.
	Permitting auditors to limit their liability by reference to proportionality does not remove financial risks from audit firms. Furthermore, proportionate liability does not guarantee the survival of an audit firm. In an extreme case, the loss caused by a firm's negligence could be greater than its financial resources. However, such liability would reduce significantly the likelihood of a catastrophic corporate failure bankrupting an audit firm, while making it far more attractive for some of the mid-tier firms to compete more vigorously to audit companies in the FTSE 350, and perhaps later, in the FTSE 100. For all those reasons, new clause 1, which would permit auditors to limit their liability by reference to proportionality, has a great deal to commend it, and I hope that the Government will at least accept the principle today if not the new clause.
	I offer new clause 2 as an alternative approach. Although the Secretary of State for Trade and Industry has ruled out the introduction of a cap, she had concluded in favour of doing so until she learned of the Chancellor's strong opposition. The OFT confirms in its report, to which I referred a moment ago, that a cap set appropriately would not be anti-competitive, so clearly, any cap would have to be set by the Secretary of State or by someone else with delegated authority, such as the Financial Reporting Council. That would be necessary to ensure that the cap was set appropriately.
	New clause 2 proposes to set the limit at twenty times the UK audit fees. I am not wedded to a multiple of twenty. Some have argued that it is too high and others have suggested that it is too low, but it represents an appropriate level, high enough to provide proper redress when something goes wrong and low enough to reduce significantly the possibility of a large claim bankrupting the auditors. There are not many providers of services and goods in the UK that face a penalty of twenty times.
	Sometimes, a single failure at a certain moment gives rise to the audit failure. More often, however, the problem has arisen over several months or occasionally years, and it is necessary for that purpose to regard the failure as what the insurance industry calls a single event. In other words, if the auditors fail to detect a fraud that begins in one accounting period and it is detected in a later period, the auditor's liability would be limited to twenty times the average fees paid to it in those years. That is an important principle if we are to avoid double counting, and it forms the substance of new clause 2.
	New clause 3 is similar to new clause 2, except that a single monetary sum—£75 million—would be imposed on all companies. PricewaterhouseCoopers suggested that sum in its response to the Government's consultative document. I am persuaded by its logic that £75 million is not an unreasonable figure. In its submission to the Department, it says:
	"For all but the very largest companies, losses arising from an auditor's negligence are very unlikely to exceed this amount, so such claims would effectively not be capped. For the very largest companies, which give rise to risks of loss greater than £75 million, it is appropriate that they should carry the excess risk themselves. We further believe that a statutory cap at this level will improve the likelihood of mid-tier firms taking on larger audit engagements, thereby increasing choice in the marketplace."
	The Government have made it clear that they expect any form of limitation of auditors' liability to be such that it promotes competition. I can certainly understand that a cap of more than £75 million would be so far in excess of the ability of mid-tier firms to meet an award of damages against them that it would do nothing to encourage them to compete for larger audits. Indeed, even for the big four, a settlement of damages much above that figure could be met only by the firm mortgaging its future, with the inevitable consequence that the firm would become unattractive to possible new partners and, indeed, many of its existing partners. Inevitably, therefore, in the long term, such a settlement would lead to terminal decline. Such a firm's ability to invest in new technology and in the development of the people whom it was able to retain would be severely damaged. That would not be in the interests of either competition or preserving high-quality audits, which are dependent on the involvement of high-quality people as audit partners and audit managers.
	New clause 4 is both the simplest and most deregulatory measure in the group. It would permit a company to enter into any contract to limit liability with its auditors provided that shareholders approved such a contract in a general meeting. The requirement for any contract to limit auditors' liability to be approved by shareholders in such a meeting would address the abuse that gave rise to the provision in the Companies Act 1929 that I cited at the start of my speech, which eventually became section 310 of the Companies Act 1985. The measure was required because of directors and auditors who conspired to enter into cosy contracts to limit their liability that became known to shareholders only after a loss had been suffered and an action had been launched against the directors or auditors. No doubt some would argue that the 1929 Act would have been better if it had simply required such contracts to be approved by shareholders. In any event, 75 years later, in a radically different and more litigious and transparent age, we can ensure that any contract would be effective only if it were visible to, and approved by, shareholders.

Michael Fallon: Before my hon. Friend moves on from new clause 4, does he accept that there could be an alternative danger? A big four auditor could put huge pressure on a company by saying that it would withdraw its services unless the company approved such a contract in a general meeting.

Andrew Mitchell: My hon. Friend might be on to a good point, but once a new system were set up—albeit not necessarily that outlined in new clause 4—the risk of such an event would be less than he suggests.
	New clauses 5, 6 and 7 effectively mirror new clauses 1, 2 and 3. However, they would impose a limitation by statute, whereas new clauses 1, 2 and 3 are permissive and would allow companies to limit auditors' liability by contract if shareholders so wished. New clause 8 combines the benefits of proportionality with those of a cap. It would provide for a belt-and-braces approach that would combine the equity of proportionality with the safety net of a cap to guard against a catastrophic claim.
	We have tabled the eight new clauses to help the Government. Conservative Members have no vanity of authorship, so we are happy to be corrected by the many skilled officials and draftsmen who serve the Minister.
	Several events have taken place since Committee. It was said in Committee that the Government would amend section 310 of the 1985 Act to permit auditors to limit their liability by contract with reference to proportionality if it were made clear that the audit profession, the business community and investor organisations supported it, and that such an amendment would enhance competition in the audit market and improve the quality of auditing. I understand that all those conditions have been satisfied—I shall deal with each in turn—yet the Government have failed to table an amendment to address the matter.
	The Institute of Chartered Accountants in England and Wales, which represents the auditors of almost every listed company in the United Kingdom, supports proportionality by contract and has said that the big four and mid-tier audit firms, which are the actual auditors of the listed companies, support such reform. Other accounting bodies, especially the Institute of Chartered Accountants of Scotland, also support the reform. It is thus clear beyond doubt that the Government's first requirement that the audit profession supports the reform has been met. The CBI, which represents larger quoted companies, and the Quoted Companies Alliance, which represents smaller quoted companies, support the concept of auditors being permitted to limit their liability by reference to proportionality.

Greg Knight: Would there not be a further benefit if liability could be limited by entering into free contractual negotiations because there would be no need to alter the law on negligence, which is a tort?

Andrew Mitchell: My right hon. Friend makes an extremely good point.
	The support expressed by the CBI also comes from the Hundred Group of Finance Directors and many individual businessmen. It is thus clear that the Government's second condition has been met.
	The Government's third requirement was support from the investment community. The Association of British Insurers, the National Association of Pension Funds and a substantial number of individual investment houses have made it clear that they support the principle of auditors being able to limit their liability by proportionality. However, they have said that they would need to see the fine detail of how such a proposal would work before finally committing themselves to it. That is perfectly reasonable, yet it provides absolutely no excuse for the Minister's failure to amend section 310 of the 1985 Act.
	It had always been envisaged that the Financial Reporting Council, on which investors, businesses, the audit profession, the Financial Services Authority and the Government are represented, would oversee the detailed terms of clauses in an audit contract to limit liability, so there would be no question of anyone signing up to the proposition before seeing the detail. Furthermore, given that the appointment of auditors is subject to a shareholder vote at an annual general meeting, investors would always have the last word on the matter, so, as I say, the legitimate requirement of investors and others to see the fine detail before making a commitment should not be used as an excuse for failing to introduce enabling measures today.
	I have always found it rather strange that the Government thought that enhancing competition in the audit market was a prerequisite for auditor liability reform. We need the UK's capital markets to be competitive and highly regarded. Sound financial reporting, backed by high-quality auditing, is a prerequisite for that, and it is clear that liability reform would improve the work of auditors. Contrary to the assertions of the Office of Fair Trading, it is clear that competition in the audit market would improve if liability reform were embraced. It would improve the chances of the existing big four avoiding catastrophic litigation, which could ultimately destroy them, and increase the likelihood of mid-tier firms being prepared to take on audits about which they had specialist knowledge and for which they had global reach, if necessary.
	The final condition laid down by the Government was that liability reform should improve the quality of auditing. I understand that several useful discussions have taken place between the Institute of Chartered Accountants and the users of accounts on how there could be more innovation in audit reports, how further assurance could be provided and how better information for capital markets could be given within an appropriate liability regime. However, audit quality fundamentally depends on the quality of people in the auditing profession. There is no doubt that the risk of catastrophic litigation is a deterrent for high-quality people, so it is possible that quality will reduce if we do not have liability reform.
	All the conditions that the Government laid down have been met, so if they prevaricate there is a risk that great damage could be caused to not only auditors— I accept that that might not worry every hon. Member—but financial stability, which should worry each and every one of us. Immensely damaging consequences would arise from the collapse of one of the big four or if a company were unable to find an auditor simply because the perceived risks associated with undertaking its audit were too great. Permitting auditors to limit their liabilities would not avoid those risks completely, but would significantly reduce their likelihood. The Government's failure to legislate is thus as irresponsible as it is disappointing.
	It has reached my attention over the past few days that the situation might be getting even worse. I understand that the European Union transparency obligations directive will make the position and liability of auditors and directors more uncertain. It is arguable that the directive might make them liable to investors in general rather than just to existing shareholders, as is the case under current English law. Auditors can cap their liabilities in other states of the European Union. The Minister will know that in Germany the cap is set at €4 million per audit, which is £2.5 million. In Austria, it is a lesser sum of €350,000. In Greece, the cap is set at five times the salary of the president of the Supreme Court.
	Auditors are liable to existing shareholders if they are negligent in their audit, but the transparency directive means that there is a risk that auditors could be liable to an investor who was not a shareholder when the audit certificate was given, but who became one subsequently on the basis of those accounts. In other words, a far bigger group of people could join in an action against the auditors.
	These are dry but extremely serious matters. We have tried to help the Minister in Committee and today. We did not vote on the subject in Committee and are shocked at the way in which she and her colleagues have been treated by the Chancellor of the Exchequer and Treasury Ministers. If she can give a copper-bottomed assurance of action, with a time scale that satisfies us, that will suffice, but if she cannot, we shall put new clause 1 to the vote.

Jim Cousins: I apologise to you, Mr. Speaker, and to the hon. Member for Sutton Coldfield (Mr. Mitchell) for missing the first two or three minutes of his speech.
	The debate is remarkable in that the Conservative party seeks to entrench the powers of a cartel by embedding new principles in legislation. To pray in aid the company laws of Greece to allow that to happen is a double conversion to more badness of an extraordinary kind.
	I shall be frank. I see little requirement or necessity to consider the idea of limiting auditor liability. None the less, having regard to the debate on Second Reading and some of the discussions in Committee, it is clear that the Government are at least willing to consider the principle of limiting auditor liability in some form.

Andrew Mitchell: The hon. Gentleman opposes limiting auditor liability. Will he therefore explain why new clause 10, which he has tabled, does precisely that?

Jim Cousins: I am about to do so.
	That limit on auditor liability could be achieved by one of the three methods outlined by the hon. Gentleman: proportionate liability, a cap on the sum or a system of contract between the company and its auditors. I remind him of the intervention by the hon. Member for Sevenoaks (Mr. Fallon), who explained to him some of the risks and dangers in a system of limiting liability in a contract between a company and its auditors which could give the company's auditors an even greater control of its workings and their activities within it. That is a new and unfortunate principle. To entrench a cartel is one thing, but to entrench a cartel by giving it new rights over companies to enforce its will is wrong.
	It is clear that the Government are considering the matter. We all know the way in which debates work. I thought that it might assist the Government, who are coming under intense pressure from one side of the argument, to consider opposite views and the factors that might be relevant were they minded to consider proportionate liability in the future. I have set out some of those factors in new clause 10 as a contribution to the debate.
	I referred to a cartel, which is perhaps unkind but not untrue. The hon. Member for Sutton Coldfield said that the FTSE 100 companies are audited by the big four auditors. I am informed that all but eight of the FTSE 250 companies are audited by the big four. That looks like an embedded, entrenched and powerful cartel that has a stranglehold on the current marketplace, effectively barring access to smaller companies, many of which are not small by any normal judgment but small by comparison with the big four.

Greg Knight: If limited liability were in place, might not the auditing work be more attractive to the smaller companies, which would enter the market?

Jim Cousins: Not if the limit on liability was carried out in the form of a contractual relationship between the auditor and company. That method of limiting liability gives the mechanism to entrench the existing cartel.
	As for the financial cap, the Opposition's new clauses set a cap that would be way too high for most medium-sized firms to enter into if money were a consideration. So that is not a powerful argument. We are talking about a fundamental principle of British company law since at least 1948. In that year, the Government of the day—a Labour Government—agreed to the requirement that audits would be acceptable only if they were carried out by a limited range of firms. In effect, that gave the auditor firms a professional monopoly over such work.
	The other part of that understanding, however, was that the moral hazard that was thereby created would be dealt with by exposing those auditor firms to the full test of absolute liability. That principle has guided the House in its discussions of the issues and through the company legislation of the 1980s steered by the Conservative party. That approach recognises that once we remove the fact of moral hazard, and if we are also prepared legally to entrench a cartel, we are moving in a profoundly wrong direction.

Michael Fallon: In new clause 10, the hon. Gentleman seems to accept a diminution of the moral hazard that he is now championing, as it refers to "exemption, indemnity or limit". Could he elucidate?

Jim Cousins: If the Government were tempted to limit liability a wide range of market actors should be able to contribute to that decision. Also underlying new clause 10 is the principle that the auditors owe a duty of care to people concerned with the company that they are auditing. I shall discuss the duty of care later, as it is a legally contested principle with a bearing on our debate. Finally, if we wish to limit liability, new clause 10 would give the regulator full and automatic right of access to all the documents and working papers of both the company and the audit firm. If, therefore, we go down the route of limited liability there must be an exchange—there must an increase in both the regulator's power and the ability of other market actors to contribute to the debate, and the duty of care that ought to guide the new relationships that are created should be much clearer.
	Among the motives that underpin new clause 10 is a recognition of auditors' duty of care. Auditors' responsibility has been eroded by case law. Under the Caparo Industries judgment of 1990, auditors generally owe a duty of care to the company only as a legal person rather than to individual shareholders. The Law Lords further decided that the audit report was prepared to enable shareholders to exercise their rights as members of the company, and not to enable them to make any investment decisions. That reversal of the principle of the duty of care has had some unfortunate effects. It is doubtful whether we can always rely on audit reports to provide public actors, market participants, investors in the market and shareholders with a guide to what is going on in a company. Another legal judgment in 1996 held that auditors may be liable to third parties beyond the company and the auditor where
	"the purpose of audit work has been widened so that it is no longer confined to the statutory one . . . and the auditor in all the circumstances ought to have regarded himself as carrying out the audit for the plaintiff's purpose as well as the company's."
	Such circumstances, however, are rare, which is why I have sought to revisit the auditor's duty of care in new clause 10. If the Government wish to limit auditor liability, in exchange we should at least be able to re-establish the broad principle of the duty of care that existed before the Caparo judgment.
	The Law Commission reviewed those issues in 1993 and 1996, and rejected the call for a cap on auditor liability. It concluded that
	"we can find no principled arguments for a 'capping' system . . . that . . . cuts across a principle that a wrongdoer should compensate the plaintiff for loss caused by its tort or breach of contract".
	It also said that a capping system would
	"put the plaintiff at a disadvantage, since the cap would represent the upper limit in negotiations for a limit".
	That demonstrates the unfortunate implications of the new clauses tabled by the hon. Member for Sutton Coldfield. The sum of £75 million in new clause 3, for example, would be significant in discussions and negotiations between companies and auditors. The Law Commission regarded
	"the policy objections to joint and several liability to be at worst unproven and, at best, insufficiently convincing to merit a departure from the principle".
	It responded to propaganda from the big four accountancy firms by arguing that it was
	"misleading to say that defendants can currently be called on 'to provide 100 per cent. of the damages even though they are only 1 per cent. at fault' since the principle of joint and several liability is . . . relative to the plaintiff".
	I made that point in an intervention on the hon. Gentleman.
	The Limited Liability Partnerships Act 2000 passed by the Government increases the concessions and protection given to accountants. We have already moved a long way from the 1948 bargain, but very few of the concessions made in the intervening period have been accompanied by a compensating quid pro quo to increase the rights of companies, shareholders, employees and other market actors. If the Government embrace limited liability, new clause 10 would create a clear quid pro quo so that powers and rights are given to participants other than the big four accountancy firms.

Greg Knight: I am listening carefully to the hon. Gentleman's argument, but what is the rationale in new clause 10 for extending the duty of care to existing shareholders, but not future shareholders who may rely on a previous auditor's report?

Jim Cousins: That point was covered backhandedly in the speech of the hon. Member for Sutton Coldfield, who rightly drew a distinction between the liabilities of auditors in mainland Europe and those of their British counterparts. In Europe, there are shallow financial penalties, but auditors can cast a wide net. The UK has evolved a different principle—auditors' rights and obligations are narrow but deep. I have therefore framed new clause 10 in a way that respects the traditional narrowness of obligation at the heart of the British approach. I do not want to move towards a mainland European system in which obligations are shallow but responsibilities are much wider. I want to maintain the traditional British principle of a network of narrow auditing obligations that are specific to a limited range of actors but have a deep application. I hope that that is helpful to the right hon. Gentleman.
	Some of the mainland European principles that guide the connection between auditors and companies were prayed in aid by the hon. Gentleman to support his new clauses. However, they are full of bad consequences and under future legislation could allow all sorts of people to pursue action on various grounds against company auditors. My purpose, however, is to defend the traditional British principle of maintaining a pattern of narrow but deep obligations.
	I do not want to detain the House too long. I have sought to put a contrary view to that being expressed by Conservative Members, and I have sought to introduce into the debate some discussion of issues that might be helpful to the Government when they consider their next moves on these matters. We should all bear in mind as legislators that major accountancy firms are sometimes fairly adept at non-co-operation with regulators. In the case of Parmalat, an Italian company, we heard recently that the UK parts of Parmalat were audited by a firm called Grant Thornton, but the firm says that the real auditor was Grant Thornton International, an Italian firm, and that the UK firm would not share its working papers and files with the regulators. That illustrates some of the mechanisms that auditors currently use to defend their position, without the House being motivated to entrench their powers still further.
	I could go on at length, discussing some of the disciplinary schemes and some of the issues of Enron that have guided American legislation. I will not do so. Suffice it to say that when the hon. Gentleman says that the Institute of Chartered Accountants in England and Wales supports the principle of Parliament adding to the entrenchments of limits on auditor liability, it is difficult to avoid the conclusion that they would say that, wouldn't they?
	If the House is minded to consider moving in the direction of further entrenching the powers of a cartel, it must also consider what additional rights it gives other actors in the situation to defend themselves and their interests. It must also make sure that we do not accidentally contrive a situation in which we agree to limitation by a contract between a company and an auditor that could result in new forms of blackmail being applied to companies in order to secure an audit. That would be wholly wrong. The House should never engage lightly in the entrenchment of cartels. When it does so, it should seek new rights and obligations in exchange.

Peter Atkinson: The hon. Member for Newcastle upon Tyne, Central (Mr. Cousins) mentioned Parmalat. I would have cited Parmalat as one of the special reasons why the Government should reform the present arrangements and support my hon. Friend the Member for Sutton Coldfield (Mr. Mitchell) on new clause 1.
	The hon. Member for Newcastle upon Tyne, Central also said that all our new clauses would strengthen what he described as the cartel of the big four companies. If that were the case, why would the organisations on the other side of the fence—the Federation of Small Businesses, the Institute of Directors and the CBI—be enthusiasts for reform of the law in this area? They would surely not campaign for a change if they thought it would be disadvantageous to them and strengthen the monopoly that the four major players had in the market.

Jim Cousins: The hon. Gentleman should also consider the comments of the hon. Member for Sutton Coldfield that some of the support given by those trade organisations to the idea of further limiting auditor liability is accompanied by all sorts of caveats about the need to consider the details. What will probably not commend itself to them is the principle of limiting auditor liability by a contract with the company.

Peter Atkinson: I agree that the trade organisations will want to see the small print of the Government's proposals, but that does not affect the broad principle that all the organisations on the business side of the fence are keen on a change in the law. The hon. Gentleman cited the 1993 Law Commission report. The world has moved on considerably since 1993. Equitable Life, Enron and Parmalat are all major events that have happened since the Law Commission reported in 1993, and it must be right for us to look again at the issue. I cannot say whether the Government will go for new clause 1, 2, 3, 4 or any other of my hon. Friend's new clauses, but it is a matter of considerable urgency.
	Much of the debate so far has revolved around the big four companies, the FTSE 100 and the FTSE 350 companies. However, the issue has an impact on many other companies in the wider market, particularly small and medium-sized business, organisations and charities, all of which must have their accounts audited. The additional costs of the risks involved flow down the chain to the prices that are charged by the medium-sized and even small firms of auditors. As we heard earlier, many partners in the large audit companies are required to borrow large sums in order to take up their partnerships. Because of the higher risk involved, the cost of borrowing that money is greater. The costs of auditing therefore rise, not just for the big firms, but for firms down the line.
	For those reasons the Government should consider urgently the reform of the law. The Minister will know what businesses are saying to the Government. Every small and medium-sized business is complaining about additional cost and additional regulation. This year has been a vintage year for that, with the costs of meeting the requirements of the disability regulations, the costs of all the new employment regulations that have been heaped on businesses and the soaring costs of audits. Many medium-sized businesses are paying thousands of pounds a year in auditors' fees. That unnecessary burden should be addressed, which is why I support my hon. Friend's new clauses. For the benefit of the health of the smaller companies in our economy, reform is urgently needed.

Michael Fallon: I remind the House of my business interests recorded in the register.
	Like the hon. Member for Newcastle upon Tyne, Central (Mr. Cousins), I initially found the new clauses somewhat unappetising. My hon. Friend the Member for Sutton Coldfield (Mr. Mitchell) is vulnerable to the charge of entrenchment. No Member of the Opposition likes to be in the business of reinforcing cartels, and the hon. Member for Newcastle upon Tyne, Central was right to draw our attention to that.
	It is dangerous to legislate because of a particular case: that of Equitable Life, which is before the courts. We should not legislate in advance of the case—my hon. Friend the Member for Sutton Coldfield assured us that the measure would not come into effect in time—and we should not legislate alongside it. If we did, we might well be asked why liability should be limited for auditors, rather than for the unfortunate shareholders in the event of the sort of catastrophic business failure to which he referred. However, I do not disparage my hon. Friend's motives. Clearly, if the big four were reduced to the big three, that in itself would reduce competition and choice for the large companies. There may well be other work that needs to be done to improve the audit marketplace, and the banks, insurance companies and lawyers may need to be better educated as to the merits of the mid-cap firms.
	My hon. Friend the Member for Sutton Coldfield is in that position because we are not where we would like to be. Her Majesty's Government have, of course, reneged on their commitment, have not followed through on the consultation and, although we have yet to hear from the Minister, do not appear to be in a position to legislate. If the Department of Trade and Industry has failed to win its battle with the Treasury, and if the Government, who have a massive majority, cannot make up their mind on auditors' liability, my hon. Friend the Member for Sutton Coldfield is right to step into the breach and offer the House a range of alternatives.
	I sympathise with new clause 10, which was tabled by the hon. Member for Newcastle upon Tyne, Central. However, the definition of the recognition of the duty of care is unclear, so I cannot support it without further detail as to how it would work, although I certainly applaud the motivation behind it.
	On the alternatives—we are being offered a menu of hot and cold food—I do not set much store by new clause 4, which is naive. Perhaps my hon. Friend the Member for Sutton Coldfield has spent too long in merchant banking rather than the business world. In the real world, auditors would simply to say to firms, "This new companies legislation has come in, and unless you sign this kind of contract, you will lose us as your auditors." New clause 4 would put auditors in the driving seat.

Greg Knight: The flaw in my hon. Friend's argument is that if new clause 4 became law, a thrusting, up and coming firm might say, "We will offer better contractual terms than the four auditors in the cartel." That would weaken the cartel, rather than strengthen it, and more big players would enter the arena.

Michael Fallon: My right hon. Friend and I share the objective of widening the audit marketplace for companies that are outside the FTSE 100, so I hope that that scenario would occur. Because firms do not change their auditors that often, however, the equal and opposite danger is that the auditor who holds the contract with a particular firm would simply go to the directors and say, "We are offering you this new contract because the new companies legislation has come in. We want you to put it to the general meeting in these terms; otherwise we will no longer be your auditor." My hon. Friend the Member for Sutton Coldfield has clearly toiled hard in the kitchen over his menu of options, but new clause 4 is not his best offering.

Andrew Mitchell: I say to my hon. Friend what I said to the Minister: it does not matter which of my new clauses you do not like, so long as you like one of them. We have tried to lay every possible option before the Commons today, so that hon. Members can make a decision. Saying nothing, a policy to which the Minister has been getting perilously close, is not an option, and that is the lacuna that we seek to address today.

Michael Fallon: I applaud my hon. Friend's hard work, but I want to comment on the individual options. We must choose one of the options, but new clause 4 is not the strongest.
	I am not particularly attracted by new clauses 2 and 3, because a cash-terms cap is vulnerable to changing circumstances and nobody knows exactly how the mid-market audit firms will evolve. I am always suspicious when PricewaterhouseCoopers or any of the other large firms proposes a cash ceiling, and handling matters on a fee-related basis would not work either.
	If the Minister does not come up with a solution, which she has promised and to which the Government were initially committed, the House must choose one of the options. As my hon. Friend the Member for Hexham (Mr. Atkinson) said, new clause 1, which is based on proportionality, has received support from not only PricewaterhouseCoopers, but across the business community and is therefore the least worst option. If my hon. Friend the Member for Sutton Coldfield were to press new clause 1, I would support him.

Brian Cotter: I congratulate the hon. Member for Sutton Coldfield (Mr. Mitchell) on new clause 1. It is an acceptable response to the issue of proportionate liability, which, as we all know, must be addressed.
	In a moment, I hope to congratulate the Minister on making a clear commitment to a solution along the lines of new clause 1, which, as the hon. Member for Sevenoaks (Mr. Fallon) said, is supported by much of the business world. I hope that the Minister will make such a commitment, because, as she knows, we need such a solution, which is why it is incumbent on her to accept new clause 1 or to make a precise commitment on when and how the solution will be produced.
	We are all taken by the galaxy of choices offered by the hon. Member for Sutton Coldfield, who, like Father Christmas, has many tempting trinkets that glitter in front of our eyes, but a solution based on new clause 1 is the prize that we want. I hope that the Minister will respond positively; she knows that she should respond positively and that everybody is calling for such a response.

Greg Knight: The debate has been interesting. I congratulate my hon. Friend the Member for Sutton Coldfield (Mr. Mitchell) on having done his homework. I trust that the Minister has done her homework too, although Conservative Members fear that it has been retained on the desk of the Chancellor of the Exchequer. The hon. Member for Newcastle upon Tyne, Central (Mr. Cousins) also made an interesting and thoughtful speech. If the Minister has other things to do this afternoon, she could rise to the Dispatch Box and indicate that she is minded in principle to accept one of the new clauses tabled my hon. Friend the Member for Sutton Coldfield, and we could all get away earlier.
	It is odd that the DTI conducted a consultation on auditors' liability. The consultation commenced in December 2003 and specifically covered that issue. Responses were requested by 12 March this year, so the closure date has long since passed. One would expect the Minister to have assessed the value of that consultation and to have reached a policy decision. I do not like piecemeal legislation or a piecemeal approach to problems, which is the approach taken in the Bill.
	A full overhaul of company law is required and provisions such as the new clauses tabled by my hon. Friend the Member for Sutton Coldfield should be encompassed in wider company law legislation. I am therefore disappointed that the Government are seeking to proceed in one area, while we await whatever proposals they may have to change company law in the future.
	My hon. Friend the Member for Sevenoaks (Mr. Fallon) said that he was attracted to new clause 1, which I, too, find the most attractive of those tabled by my hon. Friend the Member for Sutton Coldfield. However, I do not share his concern about new clause 4, which could have the opposite effect to that which he suggests; that is, it could lead to mid-market firms entering the marketplace, thereby weakening the cartel that was mentioned by the hon. Member for Newcastle upon Tyne, Central. New clause 4 is not as bad as my hon. Friend suggests, because it seeks to allow free contractual relations to take place. The benefit of proceeding in that way is that the law on negligence does not need to be reviewed because free contracting parties are allowed to build into their agreements a scope on the limit of liability.
	The hon. Member for Newcastle upon Tyne, Central spoke eloquently to his new clause 10. Looking at its precise wording, I see nothing that is incompatible with new clause 1; indeed, it could be a supplement to the provisions of new clauses 1 or 4. There is no conflict between taking a twin-track approach in allowing free contractual relations and imposing the duty, as would new clause 10, that before any exemption or contractual limitation is agreed, the shareholders and employees must have a statement. That would be a belt and braces approach. In supporting new clause 1, I am also somewhat attracted to new clause 10, which is in no way incompatible with the argument advanced by my hon. Friend the Member for Sutton Coldfield.

Jim Cousins: I am grateful to the right hon. Gentleman for his kind remarks. Does he also accept that recognising a duty of care would be a significant change to the legal framework in which the big four accountancy firms operate?

Greg Knight: I am attracted to a duty of care provided that it is circumscribed and well defined so as to avoid court actions of the sort that take place all too often in the United States.
	I hope that the Minister will be prepared to respond positively to the constructive suggestions that have been made, particularly by my hon. Friend the Member for Sutton Coldfield, and that she will tell us what action the Government intend to take.

Jacqui Smith: In response to the opening remarks of the right hon. Member for East Yorkshire (Mr. Knight), I can think of nothing more rewarding or enjoyable to do this afternoon than to take part in the Report and Third Reading debates on this Bill. Having said that, I do not intend massively to extend the proceedings, because, as the hon. Member for Sutton Coldfield (Mr. Mitchell) said, we had a relatively short but good-natured and well-informed Committee stage in which we dealt with many important issues. That followed considerable scrutiny, and changes that the Government were willing to make, in the House of Lords.
	With these new clauses, we return to the aspect of the Bill—auditor liability— that has given rise to the most significant debates, not least because the eight new clauses that the hon. Member for Sutton Coldfield has tabled for consideration today are those that we also debated at some length in Committee.
	I am grateful to my hon. Friend the Member for Newcastle upon Tyne, Central (Mr. Cousins) for tabling his new clause, which enables us to widen the debate.
	It is worthwhile returning to first principles. There is widespread agreement that audit plays a crucial role in our market and in ensuring trust and confidence in our businesses. It is therefore important, as the hon. Member for Hexham (Mr. Atkinson) observed, that all those who need and want to access high-quality audit services are able to do so. We need to maintain a complete market in which the principles of competition ensure that completeness and help to drive quality through the system. In addition, we need to maintain, and preferably to improve, the quality of the audit process and of the information that is available to those who need it.
	Those are the criteria by which we should judge any reforms that we make, and I shall use them to judge the eight different dishes that the hon. Member for Sutton Coldfield has served up to us.
	I shall start with new clause 4 because it is the most straightforward. It would remove auditors from section 310 of the Companies Act 1985 and allow them to negotiate limited liability with their clients, free of statutory constraints and subject only to shareholder agreement to any proposed limitation of liability. The Government consultation considered a similar option and found that just over half of respondents were opposed to the proposal, partly for reasons that hon. Members rehearsed today.
	Under that system, the market would set the level of any limit. That was a key fear of some of the respondents to the consultation. One major company commented:
	"if the cap is left to individual negotiation, lack of competition would probably mean that the audit profession will push liability caps down over time".
	Other respondents were concerned about the client's ability to negotiate an appropriate limit. There was concern that companies could find themselves in a weak bargaining position, particularly in situations where only a very few firms are capable of conducting the audit or where there have been past issues arising out of the audit. It is obviously important that the Government take note of those concerns and of the fact that more than half the respondents did not see this option as the way forward.
	Furthermore—I hope that this is music to the ears of my hon. Friend the Member for Newcastle upon Tyne, Central, although I cannot promise to provide that all afternoon—we are conscious that the current rules were introduced in the late 1920s in the light of difficulties whereby directors and auditors had, in effect, colluded to the detriment of shareholders. We certainly do not want to see the return of those scandals.
	New Clauses 2 and 6 would restrict, or permit restriction of, any liability to a figure of 20 times the audit fee, or—when the auditor has committed the same act of default in two or more consecutive audits—the average of the audit fee paid by the company in those periods. An upper ceiling set as a multiple of the audit fee has the merit of making the limit proportionate to the audit fee. However, it does not in any way reflect the loss caused to the company. To that extent, it is an entirely arbitrary figure in relation to any actual loss, and it will have arbitrary results.
	At one extreme—where there are very high audit fees, for example—that approach could result in liability at levels that auditors suggest they cannot afford, thereby not solving the problem that hon. Members set out in the first place. At the other extreme, where there are low audit fees, it could mean investors being compensated for only a small proportion of the loss that they suffered through the auditor's negligence.
	That dichotomy and problem cannot simply be addressed by changing the multiple from, for example, 20 to 10 or 20 to 40, because what improves the position at one end of the scale makes it worse at the other. That is a fundamental problem with the idea of a cap that reflects a multiple of the audit fee. It is of further concern that any limit that is based on a multiple of the audit fee would create a potential incentive for auditors to keep the fee as low as possible. At first sight, that might appear to be a good thing, but it is not in shareholders' interests for auditors to take short cuts. Indeed, under the regime set out in the new clauses, they have a positive interest in paying a high fee so that they can claim more back if things go wrong. It is therefore ironic that the new clauses could create a position whereby, because of the potential for claiming back in the case of a problem, the purchaser wishes to pay more than the supplier wants to charge.
	The Government have considered the options in new clauses 2 and 6 carefully and concluded, again with the majority of the respondents to the consultation, that they are wrong in principle and in operation.
	Let us consider new clauses 3 and 7, which, in some ways, are even more arbitrary in their effects. Under the proposals, the auditor's liability could or would be limited to £75 million. We have serious concerns that the approach would be anti-competitive. Some alternative arguments have been put today, but a major difference already exists between the big four audit firms and the next group, the so-called tier A firms, on the proposal. The Government have been told that a simple limit, which is fixed at a figure such as £75 million, would benefit the biggest firms but do little or nothing for some of the smaller and medium-sized firms, which risk being wiped out by such a sum. That approach could therefore entrench the current position and do nothing to aid our objective of enhancing competition in the audit market.The option clearly does not have the unanimous support of auditors, let alone investors. It is seriously flawed and the Government cannot accept it.
	Let us consider new clauses 1 and 5, which, as hon. Members have said, are based on proportionality. New clause 8 mixes that idea with the sort of numerical cap against which I have just argued. New clauses 1, 5 and 8 raise more questions than they answer in running together contract and tort, and contribution between two or more liable people and that between company and auditor. However, despite the comments of the hon. Member for Sutton Coldfield on the disadvantages of the system of joint and several liability, I welcome his apparent agreement that any solution such as a proposal to limit liability proportionately by contract should be placed in the context of the current law on joint and several liability.
	One of the attractions of a proposal to limit liability proportionately by contract is that it would not involve some of the much wider implications and unintended consequences of a full-scale reform of the law on joint and several liability but could enable the introduction of elements of proportionality.
	The response to the proposals, especially in new clause 1, is that there may be scope in the system of joint and several liability for the auditors to limit their liability in some way to an amount that, in lay terms, is proportionate to their responsibility. That idea emerged in the course of our consultation. The Government did not present such a proposal for consultation but, as happens in good consultations, it emerged during the process and has rightly received serious consideration. It has come to be known as proportionate liability by contract.
	It is relatively easy to understand how a system of proportionate liability by contract could work between professional advisers, albeit with shareholders or the liquidator bearing the risk that one or more of those who had been negligent are unable to pay their share of the sum involved. As I have made clear, the Government certainly does not rule out that approach. However, it raises many questions that we need to work through with companies, auditors and investors before reaching a conclusion and a way forward.
	For example, what should happen when directors have been dishonest, the auditors have been negligent in not detecting the dishonesty, and the company has suffered further loss? It is possible to argue that the company would not have suffered such losses if the auditors had done their job. According to that logic, auditors should be responsible for all the loss that their negligence caused the company. However, that would not do much to reduce auditor liability.
	Alternatively, one could argue that the shareholders were responsible for choosing the directors and ensuring the maintenance of proper systems of corporate governance and hence should bear the risk of the possible dishonesty of the people whom they choose for the job. Accordingly, the auditors should not be held responsible for any loss. I hasten to add that that is not an argument that the auditors wish to advance; it would deprive the audit of purpose. However, I hope that it demonstrates some of the difficulties.
	There are key questions, such as: should auditor's liability vary according to how much money a negligent or fraudulent director can pay back, assuming that he can be found and has assets? How different is that from the current position? Should the auditor's maximum liability vary in some way according to the negligence of the conduct of the audit? Some recent cases show that simple slips can play a key part in leading to huge losses. Do the simple slips matter, or should we ask the courts to consider the whole question of how the audit was planned and conducted? What guidance can we give them to distinguish between an audit that was 10 per cent. flawed and one that was 5 per cent. flawed? Is it possible to have degrees of audit failure?
	Those are not easy questions but that does not mean that they have no answers. However, new clauses 1, 5 and 8 propose no answers. The Government have therefore concluded that there are too many unanswered questions currently to ask hon. Members to approve any reform. Moreover, stakeholders have stressed that it is important that changes to the liability regime take place only as part of a package of reform in which both the audit's quality and competition in the audit market are enhanced. Indeed, there is no reason why work to improve further the quality of the audit should not proceed immediately, in parallel with consideration of the rules of liability. I am pleased about the proposals from the Institute of Chartered Accountants in England and Wales to which the hon. Member for Sutton Coldfield referred. That is a good sign of action to deal with quality of audit.

Michael Fallon: The Minister has explained at some length and helpfully some of the prevailing arguments about the difficulty of following the route of new clause 1. However, we are considering a companies audit measure. Is she genuinely claiming that it is not possible to propose such a package before the Government's Bill, which deals with audit, is passed?

Jacqui Smith: I have pointed out some of the problems involved, and I am now going to talk about some of the possible solutions. While I cannot support any of the amendments that are before the House today, I am personally determined to make progress on these issues, not least because of the importance of maintaining confidence in the operation of our capital markets.
	Since the House last debated this issue, in Committee on 14 September, the Government have taken the lead by bringing together all the parties involved. Our goal in doing that was to see whether a joint approach could be developed which would meet the different concerns of the parties, as well as meeting the Government's objectives of ensuring that all companies that require them can readily obtain audits, that further improvements in the quality of audit are delivered, and that competition in the audit market is improved. These discussions have resulted in some progress being made, and they are continuing.
	In particular, it is crucial that we should be able to address the issues of competition as well as some of the issues raised in report of the Office of Fair Trading. It is only right, when we set up an independent competition authority, to take seriously the issues raised in such a report. The job now is to move from the principle that the approach involving proportionality by contract could well be the appropriate way forward, as the Government believe—I acknowledge that there is agreement in this regard—to the detail of how that will work, and the consequences that will ensue. To ensure that that happens, following further discussions involving officials, I plan to meet the key players personally soon, and I hope to gain an agreement that meets all their concerns. Urgent though the issue is, it is also important that we get this right.
	If an appropriate package of reforms can be constructed in time—I reiterate my concern to ensure that that happens—the Government will aim to consult further next year on the details of proposals to be included in the forthcoming companies Bill. We have the opportunity to legislate at that time, and I will certainly work hard to ensure that we move from the principles on which there is agreement to the details that will enable us to take this issue forward.
	I want to turn to the points raised by my hon. Friend the Member for Newcastle upon Tyne, Central. He has made clear his objectives. While he opposes caps on auditor liability, he believes that the law may be changed to permit auditors to limit their liability at some point in the future, and he is seeking to establish a framework within which any such limitation would operate. I agree with his desire to protect the interests of groups other than auditors, and I hope that I made that clear when I described the process that we have undertaken and will undertake as we go forward on these issues. He is not alone in having concerns in this regard. I have also explained that the Government are determined to protect the interests of all key stakeholders, including shareholders, in this work. The representatives of investing groups will also be fully involved and consulted.
	My hon. Friend expressed his concern that proposals to limit auditor liability could lead to the entrenchment of cartels. I have made it clear on every occasion on which I have talked about this issue that the reason that we have already ruled out many of the more simple, unsophisticated limits and caps is that they would not help to improve competition and would therefore not fulfil our objective in that regard. I can assure my hon. Friend that the proposals that we introduce will ensure that competition is sustained and improved. The whole point of an approach involving a contract that limits liability proportionately with respect to responsibility is that it would not introduce a crude limit that would entrench or over-protect the position of auditors. Instead, it would enable liability to be more effectively divided in proportion to responsibility. That seems to be a reasonable way of going forward.
	I am also grateful to my hon. Friend for raising the issue of audit working papers and files. He rightly said that, in order to maintain the quality and regulation of audit that we need, it is important that such documents should be available to the regulatory authorities. The work of all audit firms and individual auditors is subject to monitoring by their supervisory body, and part of the monitoring process consists of the review of audit working papers and files.
	Clauses 1 and 2 of the Bill will ensure that the monitoring of the audits of listed companies, and other companies in whose financial condition there is a major public interest, is carried out independently of the supervisory bodies. We expect that this independent monitoring will be carried out by the audit inspection unit which will report to the professional oversight board for accountancy of the Financial Reporting Council. Clause 1 specifically requires supervisory bodies to have rules to ensure that the auditors registered with them
	"take such steps as may be reasonably required of them"
	to enable their performance as auditors to be monitored. This will include making available audit working papers and files where these are required by the audit inspection unit.
	The new power contained in clause 12 of the Bill will give the financial reporting review panel—the body authorised to investigate departures from the accounting requirements of the Companies Act 1985—the power to obtain information and explanations from, among others, the auditor of a company. I can confirm that auditors could be required to disclose audit working papers to the panel if those papers are reasonably required by the panel to carry out its statutory functions.

Jim Cousins: I thank the Minister for many of the things that she has said. May I press her, however, on whether the provision of a framework for the auditors' duty of care will form part of the debate that she expects to take place before the next companies Bill is introduced to address these issues?

Jacqui Smith: I was just coming to that point. My hon. Friend has raised some important issues about the duty of care, but it is not the case that they have not already been considered in some detail by the company law review, which gave detailed consideration to the arguments—some of which my hon. Friend made—for extending the duty of care. The review consulted twice on possible ways of resolving the issues identified. Some of those were highlighted today by the right hon. Member for East Yorkshire, who said that he could see benefits in extending the duty of care but instantly provided caveats involving how broadly it should be extended and whom it should apply to.
	Those are precisely the difficulties that resulted in the company law review—despite having consulted twice on ways of resolving these issues—concluding that it did not believe that the case had been made for the statutory extension of the duty of care of auditors. That is why the Government's own consultation sought further views on this matter—the majority of respondents were opposed to any change—and why my right hon. Friend the Secretary of State therefore announced to the House on 7 September that the Government were not planning to extend the duty of care at this point. That consultation was carried out at the same time as we considered the issues surrounding the limitation of auditor liability. These issues have, therefore, been given quite a considerable airing.
	To conclude, I hope that hon. Members feel that we have given serious consideration to the issues raised during this debate. We have made considerable progress. I am committed to ensuring that that progress continues, and we have the ability, and I hope that we will have the wherewithal, to legislate in the draft companies Bill next year on the basis of an agreement not only on the principles but on the detail as to how we can make the proposals work.

Andrew Mitchell: This has been a most interesting debate on an important matter. It is important that those outside the House see that such issues are properly addressed in this place.
	The hon. Member for Newcastle upon Tyne, Central (Mr. Cousins), who has a longstanding interest in these matters, mentioned the issue of duty of care. The suggestion that the auditor's duty of care should be extended has been subject to much discussion and was one of the matters on which the Department of Trade and Industry consulted. The overwhelming response, not just from the auditing profession but from business and investor organisations, was that the present system had much to commend it, and that widening the duty of care would not, overall, bring benefit to investors. As far as employees are concerned, their remedy, of course, is related to the company, and I am pleased that the Minister has wisely said that she does not intend to alter the duty of care of an auditor. On that point, I am happy to support the DTI.
	The hon. Member for Newcastle upon Tyne, Central spoke about the dangers of entrenching a cartel, which was also a point made by my hon. Friend the Member for Sevenoaks (Mr. Fallon). I assure both of them that that is not my intention. I want to widen competition, and there is nothing between the Opposition and the Government on that point. My hon. Friend the Member for Hexham (Mr. Atkinson) signalled widespread support for the reforms but warned against the costs and burdens imposed all too readily, sadly, by this Government on business.
	My hon. Friend the Member for Sevenoaks made several other points: he went through the menu that I put before the House this afternoon, and selected new clause 1. The concern about one of the big four going bust is that major public companies will not get an audit as a result. That has significant implications for pensioners, the work force, customers and dependants. That is at the heart of our argument.
	The hon. Member for Weston-super-Mare (Brian Cotter) who spoke for the Liberal Democrats and whom I thank for his kind comments, urged the Minister to give in to my advances and also selected new clause 1. My right hon. Friend the Member for East Yorkshire (Mr. Knight) spoke up for good government, and showed that not only does he have the eye of an extremely able lawyer but, as a distinguished former Government Deputy Chief Whip and DTI Minister, that he understands the importance of the provisions that we are debating today. He said that he awaits the wider Bill, subject to the company law review, and in that respect he joins almost everyone else in the House.
	The Minister came tantalisingly close to agreeing with the view put by the Opposition and the Liberal Democrats. She undertook a tour d'horizon of the argument. She went through the new clauses, which we tabled today, and gave the House a dissertation on the choice. I fully accept that she and her colleagues have seriously examined the arguments and the new clauses, and I agree with much of what she said. I accept her point that the £75 million cap might be anti-competitive—this is a case of trying to examine all the possible options in a clear-sighted way. She, like many others in the debate, came down on the side of limiting liability proportionately and by contract. But having come tantalisingly close, she then proceeded—to use what I believe is the military metaphor—to lay down smoke, and started talking about the number of important and fringe issues affecting the debate, and the issue of how to measure the degree of audit failure. She teased me with the fact that while in this Bill she could not come forward with a new clause, she was absolutely committed to a package of reforms for another Bill later in the Parliament.
	Clearly, the House feels that new clause 1 is the best way of resolving this matter. Certainly, the business community, those who speak for the investor community and investors themselves feel that. The regulatory and professional bodies feel that. In fact, everyone apart from the hon. Member for Newcastle upon Tyne, Central feels that. If I have read the comments of the Secretary of State aright, and if I have interpreted the Minister's body language correctly, it is new clause 1 that basically takes her fancy. To strengthen her position in her negotiations with the Treasury, I hope that she and her colleagues will remonstrate vigorously with the Chancellor over the embarrassment that he is causing to the Department of Trade and Industry team and the irritation of the business community, as she knows well that the blame for the embarrassment that she is about to be caused rests fairly and squarely with him. Even so, it is right that we should test this matter out and put new clause 1 to the vote.

Question put, That the clause be read a Second time:—
	The House divided: Ayes 145, Noes 283.

Question accordingly negatived.

New Clause 9
	 — 
	Amendment of the Companies Act 1985: Auditors—ineligibility

'(1) The Companies Act 1989 (c.40) is amended as follows.
	(2) After section 27 (Ineligibility on ground of lack of independence) there is inserted—
	"Ineligibility on ground of the sale of non-audit services
	27A. Any auditor or audit partnership that has sold consultancy and advisory services or tax avoidance schemes requiring registry to a company shall be ineligible to act as an auditor for the financial statements covering the period of the sale.
	Ineligibility on ground of lack of rotation
	27B(1) In the case of a large company, an auditor completing five continuous terms in office shall become ineligible for appointment for the next five years.
	(2) Upon completing the five continuous terms in office, the outgoing auditor shall issue a statement addressed to shareholders, creditors and employees.
	(3) A statement pursuant to subsection (2) shall be accompanied by a notice stating—
	(a) that there are no circumstances in connection with company financial statements that shareholders, creditors and employees need to be aware of; or
	(b) that there are circumstances connected with company financial statements that shareholders, creditors and employees need to be aware of; and in such cases, full details of the circumstances shall be provided.
	(4) Within 14 days of the receipt of the statement from the outgoing auditor the company shall—
	(a) circulate it to all shareholders, creditors and employees; and
	(b) file it with the Registrar of Companies.".'.—[Mr. Cousins.]
	Brought up, and read the First time.

Jim Cousins: I beg to move, That the clause be read a Second time.
	I shall have regard to the Government's intentions as set out during the last debate. They have made it clear that auditor liability will be debated again in a future companies Bill, which is why it was unnecessary to press new clause 10 to a Division. I shall also have regard to the fact that, according to the Government, we shall have an opportunity to revisit all these matters in the fairly near future.
	Nevertheless, new clause 9 draws attention to two issues that the Bill does not cover, but which I hope will be dealt with in some form in any new Bill that comes before us next year. I shall deal as rapidly as I can with those issues, the first of which is the importance of rotating auditors. The current position is that the auditing and accountancy world has accepted the need to rotate audit partners, but not the case for rotating audit firms. That contrasts with the provisions applying to our colleagues in local government, in respect of whom the Audit Commission has insisted on a review of audit relationships every five years and required a test of the continuity of the audit service provided by an audit firm. That service must include the ability to report irregularities, and to report independently and clearly on the effectiveness of the organisation involved. Of course, that provision is not framed in quite the same way as a requirement to rotate audit firms, but it perhaps provides the Government with some guidance on how they should address such issues. It would be wholly wrong for the Audit Commission to impose on local government and other public bodies requirements that were not to be imposed on public companies in general.
	It is also true that the rotation of auditors is an issue that constitutes unfinished business so far as the famous Sarbanes-Oxley legislation is concerned. The United States Congress did not resolve that issue clearly through its discussions, but that is no reason for this House to avoid addressing it. There is a need for a clearly independent relationship between auditors and those whom they audit. It is difficult to see how that can be achieved where there is a long continuity of relationship between audit firms and those whom they audit. Such a relationship clearly leads to collusion and connection, and to established practices that might not be in the interest of a fully independent audit.
	The current practice of changes in audit partners—itself achieved as a result of much campaigning and debate in the 1980s—has not led to robust audits. There is no example of an incoming audit partner produced by rotation having blown the whistle on the conduct of a previous audit partner. Of course, audit partners change anyway—some retire and others leave the firm in question—but even in those contexts, there are no examples of partners commenting unfavourably on the work of other partners.
	A further concern, about non-audit services, is addressed in new clause 9. In a recent case involving the Royal Automobile Club, the outgoing firm of auditors suggested that the incoming auditors, PricewaterhouseCoopers, had undercut it by 50 per cent. in order to secure the audit. It claimed that that demonstrated a determined approach to price audit work on a predatory basis, so as to secure an appointment that might enable PWC to introduce higher priced consultancy services to the RAC in due course. Yet that seems not to have produced any corresponding robustness in the first year of the PricewaterhouseCoopers audit.
	There is considerable evidence that big investment management organisations would prefer a system involving the rotation of audit firms. The pension fund company Hermes has called publicly for such rotation and, in a survey published in February 2002, a majority of finance directors expressed the belief that companies should be compelled to rotate auditors every few years. The issue is very much on the agenda and the risk of collusion certainly informs the debate on corporate governance.
	New clause 9 also deals with the separation of audit services from non-audit services. It is a fact that almost three quarters of accountancy firms' income derives from selling non-audit services to their audit clients. That creates the danger that audits might be used as loss-leaders to secure non-auditing work, with big firms sometimes undercutting mid-market ones in precisely the way that I described in respect of the RAC case. It is clearly essential that auditors be completely independent of the company in question and that they have no material interest in the judgments that they make concerning the financial statements that they audit. By selling non-auditing services, auditors acquire a material interest in protecting and defending aspects of those financial statements. Their position is no different from that of an employee and the potential for conflicts of interest is clear.
	According to a poll carried out on behalf of the accountancy regulators, nearly 83 per cent. of company executives said that a desire to gain more non-audit work impairs auditor independence. Nearly two thirds of auditors themselves agreed with that point of view, and more than half the auditors surveyed also agreed that the remuneration of audit partners is affected by their ability to generate non-auditing services within the same company. Such a connection between the audit function and non-audit services in respect of the same source has been a factor in a number of well-known company failures. Recent examples include Enron and Parmalat, and there are a whole host of examples from the more distant past. Enron's auditors, Arthur Andersen, also supplied quite expensive non-audit services to that company. Its financial rewards were directly connected to those sales, and the same incentives and possible collusive relationships are also a factor in the UK audit market.
	Similarly, the Department of Trade and Industry's inspector's report on Maxwell called for major reforms of auditor independence. That has been reflected over the years in a whole host of DTI inspectors' conclusions. In 1979—a year that many of us in this Chamber will remember for other reasons—one such report reached the following succinct conclusion: "In our view, the principle of the auditor first compiling and reporting upon a profit forecast is not considered to be good practice, for it may impair their ability to view the forecast objectively and must endanger the degree of independence essential to this work."
	Finally, I should tell the House, that whether it likes it or not, this issue will come before us in some form. Under the Sarbanes-Oxley Act 2002—the recent legislative result of the Enron affair—the provision of nine kinds of non-audit services from a company's own auditors is now banned. Congress did not accept the idea of a disconnection between audit and non-audit services, but it did set out nine things that would be banned from being provided by an audit firm to the firm that it audits.
	It is instructive to list those nine aspects. The first is bookkeeping services relating to the accounting records. Then we have the design and implementation of financial information systems; evaluation services or expressions of the opinions of fairness; actuarial services; the ability to outsource internal audit functions to the same firm that was supplying the external audit; non-audit services such as management functions or human resources advice; any activities as a broker or dealer or investment adviser; legal services or other expert services unrelated to the audit; and any other service that the accounting board set up under the legislation would later determine by its own regulations to be impermissible. That is a fairly comprehensive range of services that audit firms are banned from providing to the companies that they audit.
	The issue will not go away because many British-registered companies will have those rules applied to them if they list in the US. It is very much a live issue. I would like to know how the Government intend to respond to the issue now. The House will have to consider the matter again and it should certainly form part of our debates on the new companies Bill that the Minister outlined in the previous debate.

Michael Fallon: The House can well understand the background against which the hon. Gentleman introduced the new clause. As he said, there have been too many financial and accounting scandals, not just in the United States, but in the UK. That is why many of our international companies, as well as American companies, now face having to implement Sarbanes-Oxley. When we consider Cousins-Jones against Sarbanes-Oxley, I fear that Cousins-Jones—the new clause before us—is equally vulnerable to some of the difficulties of implementation. I would like to take issue with some of drafting of the new clause.
	First, the proposed new subsection 27A pejoratively lumps together tax-avoidance schemes with consultancy and advisory services. The hon. Gentleman might have strengthened his case if he had not linked them so ostentatiously.
	Secondly, as the hon. Gentleman told us, Sarbanes-Oxley makes a clear distinction between the different types of advisory service, which is an important point. It is too easy to say that there is "audit" on the one hand and "non-audit" on the other. It is possible for an auditor to identify some important tax advice that is needed in a company. There is no one more natural than the auditors themselves to carry forward that tax or other accounting advice that is needed. That is why it is interesting that tax advice is not on the list that the hon. Gentleman read out. With great respect to the hon. Gentleman, who has followed this subject for a very long time, it is too easy to brand in a single sentence consultancy and advisory services and tax-avoidance schemes. There are many non-audit services that may be directly linked to audit and many others that may not.
	With respect to proposed new subsection 27B, the hon. Gentleman's example from local government was not a valid one. As he recognised, the test in local government is a continuity test. What new subsection 27B proposes is an absolute bar. Auditors would not be allowed to carry on after the five years, even if they met some of the criteria laid down under the local government test. That is why I am not attracted to that proposal.
	Let me clarify what the important issues are. Where there is an imbalance between the audit fee and the remuneration for non-audit services, there should be some recognition of the fact and perhaps some test of proportionality. Clearly, if predatory pricing is taking place or an audit firm is simply offering an incredibly cheap audit in the full knowledge that there will be a whole package of non-audit work that it will then secure, that amounts to a real issue. The hon. Gentleman may recall that I raised that matter with the Financial Services Authority, which was itself engaging in the practice of paying its own auditor three times as much for its non-audit work as it was for the audit. The issue is real but, with great respect, it needs to be tackled in a slightly more sophisticated way.

Robert Smith: Will the hon. Gentleman expand on the point about balance? Does he mean balance in respect of the volume of work or the value for money of that work as between the audit and the non-audit function?

Michael Fallon: I was thinking neither of the volume of the work nor of the value for money, but of the fee that would be available to a particular firm. Predatory pricing takes place in any business or industry and I would like to see some safeguard so that audits cannot be bought on the cheap and new audit firms cannot buy their way in with the knowledge that a great volume of non-audit work would immediately fall to them. It is an issue that we need to reflect on and tackle, but it is not properly covered by the new clause.
	The independence of partners is also an issue. We have already discussed the practice of ensuring that partners are fully independent not just from one audit to the next when they take over the audit from another partner, but within an audit firm as between partners responsible for audit work and those responsible for non-audit work. It may well be that more could be done to ensure that those Chinese walls remain impenetrable.
	Finally, will the hon. Gentleman reflect again on what never seems to be considered when proposals such as this come up—the whole issue of costs? There is a related issue because, if all firms have to rotate their audit every five years, that could well reinforce the cartel rather than opening it up, with firms being passed round between the big four on an automatic rotating cycle. That is one issue, but there is also the issue of cost. It may be that a firm is perfectly happy with the auditors that it has, and simply has to go through the whole process of tendering the audit out, with all the extra cost that that entails, simply to meet some box-ticking requirement.
	Cost is an issue, not so much for the big firms that have big auditors, but for the others. The new clause refers to "a large company", but I am not sure whether that is a Companies Act 1989 definition or refers to the FTSE 100 or 300 companies or to all public limited companies. In any case, there is clearly a cost to such requirements and we need to be more careful to establish what exactly it is before going down the route of automatic rotation. For all those reasons, I have some doubts about the new clause.

Andrew Mitchell: I pay tribute to the hon. Member for Newcastle upon Tyne, Central (Mr. Cousins) for tabling this interesting new clause, but I fear that I cannot be much kinder about it than my hon. Friend the Member for Sevenoaks (Mr. Fallon).
	Early on in his remarks, the hon. Gentleman referred to Sarbanes-Oxley, which I fear he was praying in aid. He will be aware that the US decided against the mandatory rotation of audit firms and against a prohibition on auditors providing advisory and other non-audit services. Sarbanes-Oxley was largely about the US catching up with the UK. Where Sarbanes-Oxley leapfrogged the UK, the Government's consultative group on accounting and auditing recommendations brought the UK up to the level of the US. Indeed, there is some argument that this Bill completes that process.
	It is clear that, taken together, the proposals in new clause 9—and new clause 10 in the previous group—would mean that the private sector would withdraw from auditing listed and public interest companies. Perhaps the hon. Gentleman believes that a state-owned auditor such as the National Audit Office should undertake the audit function. I do not, but I recognise that it would be the fastest way to persuade the Treasury that auditors should have limited liability, as under no circumstances would it wish to have to fund the NAO—or any other state auditor—on a joint and several liability basis when something went wrong, as it assuredly would.
	The combination of mandatory audit firm rotation, together with a prohibition on the auditor selling non-audit services such as tax or consultancy advice to the company—both while it is that company's auditor and in the previous five years—would mean that the large firms of accountants will simply concentrate on everything that they do other than audit. Frankly, on any sensible commercial criteria, those large firms could hardly come to any other conclusion.
	As I have said, the combination of the various proposals would certainly drive all private-sector audit firms out of the business of auditing. However, each measure on its own would be likely also to have that effect. Furthermore, each of the measures would have exactly the opposite effect from that which I assume is intended, in that the quality of audit would be reduced rather than enhanced. First and foremost, the quality of an audit depends on the quality of the people conducting it. Auditing is not simply a question of following a rulebook but of the exercise of judgment. It is about understanding a business and recognising where risk may lie. It is also about making sure that the audit is directed into the right areas and that the findings are understood, so that the right conclusions can be drawn from the audit.
	I am advised that, almost without exception, the very high quality of people attracted into the accountancy profession say that they have chosen that qualification above other business qualifications because of the diversity of activity conducted by chartered accountants. It is essential, therefore, that we continue to permit auditors to conduct a wide range of activity, so that they can attract the very high-quality talent necessary for them to conduct high-quality audits.
	Secondly, it is ludicrous to imagine a situation where an auditor could not offer any advice to a client. The auditor's knowledge of accounting, internal controls, corporate governance and many other related issues qualify him or her to give such advice. The auditor's deep—indeed, intimate—knowledge of a business that he will have gained from conducting an audit frequently makes him far and away the best person to give advice. The new clause would deny that source of advice to companies, thereby lowering the standards of financial reporting, internal controls and corporate governance in the UK, rather than improving them.
	The Auditing Practices Board is independent of the accounting profession and is chaired by an eminent lawyer. It has just published new ethical standards for auditors. Broadly, they permit auditors to provide a wide range of services to their audit clients, subject to appropriate safeguards. That approach builds on earlier standards pioneered in the UK that since have been adopted around the world. The approach also makes sure that auditors have appropriate objectivity and independence and allows companies to take full advantage of the particular skills that the audit firm can bring to them. It would be insane to move away from that well-developed and much-copied system.
	The second proposal is every bit as unwise as the first. If I understand it correctly, the intention is that a large company should be required to change its auditors every five years. I imagine that the hon. Gentleman is aware that such a system using a nine-year rotation period has operated in Italy for some years. I remind him that it was in Italy that the largest corporate scandal in Europe—to which he referred twice—took place. I do not know whether he has had a chance to look at the research conducted by Bocconi university in Milan, but it concluded that that system of audit firm rotation has reduced rather than improved the quality of auditing in Italy.
	The fact that I can present that information shows that the Conservative party's research facilities have been working overtime. The hon. Gentleman must have been unaware of the Bocconi research, as he could not possibly have tabled this new clause if he had read it. I am sure that he is aware that the US General Accounting Office recently conducted a study into whether a system of mandatory audit firm rotation would improve audit quality. It concluded that the opposite would be the case.
	Indeed, the concept of a system of mandatory audit firm rotation was considered here in the UK as recently as last year by the Government's consultative group on accounting and auditing issues, under the joint chairmanship of the then Financial Secretary to the Treasury and the DTI Minister then responsible for consumer affairs. The conclusion was that the risks associated with such a system more than outweighed any benefit. It found that the benefits could be achieved in other ways and, indeed, that they were being achieved as a result of measures introduced by the profession voluntarily and by the Auditing Practices Board.
	I have some sympathy with the notion that auditors should make clear to shareholders the reasons for their resignation. However, that requirement is part of the law at present, and so that aspect of the new clause is not necessary.

Jacqui Smith: We have had a short debate, but the quality has been high. I assure my hon. Friend the Member for Newcastle upon Tyne, Central (Mr. Cousins) that the Government do not have a closed mind about anything that might help to improve confidence in financial reporting and the quality of audit, but I said on Second Reading that there are two approaches to audit regulation. We can either take the rules-based legislative approach adopted in the US, or we can build on the principles-based approach that we already have in the UK.
	The new clause adopts a rules-based approach to the questions of non-audit services and of rotation of the auditor. In many ways, that allows me to set out more fully why the Government believe that the better route for the UK is to build on the existing principles-based approach.
	There is a general consensus about what we want to achieve. We all want to be sure that auditors act with integrity, objectivity and independence. We want to guard against two specific risks: the provision of non-audit services alongside audit services, and the development of a relationship between the auditor and the company being audited that is inappropriately familiar, cosy or collusive. However, there are many other possible risks in the relationship between auditors and the companies that they audit. I shall deal with them in a moment, when I explain about the ethical standards of the Auditing Practices Board.
	One of the difficulties of adopting a rules-based approach dealing with only two specific areas of the problem is that it can imply that other matters are not important. The benefit of the ethical standard is that it covers a broader area. However, we recognise the risks that were outlined by my hon. Friend the Member for Newcastle upon Tyne, Central, and we share his overall objective. We depart from him only in respect of how that objective can best be achieved.
	As the hon. Member for Sutton Coldfield (Mr. Mitchell) noted, in 2002 the Government established the co-ordinating group on audit and accounting issues. That was a direct response to the events at Enron and later at WorldCom. One of the group's key concerns was auditor independence, and it devoted a great deal of time to looking at non-audit services and at auditor rotation in particular.
	The conclusions that the group reached were firmly against imposing a ban on non-audit services or on compulsory rotation of audit firms—precisely the two measures proposed in this new clause. In its final report, the group stated that
	"firm rotation is a blunt regulatory instrument, and there are a number of arguments against mandating it."
	The report went on to list those arguments, some of which have been touched on in today's debate. The first problem has to do with the quality and effectiveness of audit in the years immediately after a change of auditing firm. That is especially difficult given the ever-growing complexity of large groups. In other words, there can be some benefits as well as dangers in the development of continuity and understanding.
	Secondly, rotating auditing firms would impose substantial costs on business, as it would take up a lot of management time. The third factor is that there is no evidence that the rotation approach is effective. It has been tried and abandoned in Spain, for example, and the hon. Member for Sutton Coldfield pointed out that it is still in operation in Italy. Other countries that have considered the issue have all decided against it. Indeed, my hon. Friend himself highlighted the fact that despite the rigours of the Sarbanes-Oxley Act 2002, the US has not gone down that route either.
	The fourth issue was the problem of being able to find large audit firms to carry out all the audits if frequent rotation were required, especially as some might be prevented from taking on the work as a result of auditor independence requirements also being introduced. As we discussed in the debate on the previous group, the market for large audits is very concentrated.
	Finally, the Office of Fair Trading expressed concerns about rotation being in effect a form of compulsory retendering with one of the potential bidders excluded. That is what the group had to say about compulsory rotation of the audit firm.
	My hon. Friend the Member for Newcastle upon Tyne, Central identified the alternative approach, which we have adopted—ensuring the rotation of the leading audit firm partner through the application of ethical standards. The previous rotation period was seven years, but it has now been reduced to five.
	Let me deal next with what the co-ordinating group had to say about banning certain non-audit services. I will then come to what steps have been taken as a result of the group's recommendations to further auditor independence and, in particular, the role of the Auditing Practices Board. I do not oppose my hon. Friend's proposals because I think that there is no issue to address. On the contrary, we should perhaps take a broader approach to the problem than he adopts in new clause 9.
	The co-ordinating group concluded that the provision of non-audit services was indeed a problem—in appearance, if not in fact—but that the solution was not to impose a ban on particular types of services being provided; rather, it was to re-emphasise and strengthen the key principles that were already in place in the UK, namely that auditors should not carry out work for a company that they are auditing if that would involve the auditors taking management decisions, auditing their own work, or acting as an advocate for the client. The group concluded that tougher mechanisms were needed to safeguard those principles. Specifically, it recommended that ethical standards on auditor independence should be set by an independent standard-setting body; the audit firms should be monitored frequently and by an independent monitoring unit in the case of public interest audits; the audit firms should be more transparent in publishing details about their own structures, processes and financial position; the role of the audit committee within the company should be enhanced through changes to the combined code guidance; and companies should be required to disclose more detail in their annual reports.
	The last of those requirements, of course, is the subject of clause 7. In response to the point made by the hon. Member for Sevenoaks (Mr. Fallon), I can say that clause 7 also requires more transparency about the costs of non-audit services that are bought by the company.
	The combined code has been expanded as a result of the excellent work of Sir Robert Smith and his group on the role of audit committees. The major firms have published more information about their own internal practices, and that is also a matter that is covered in the draft European directive on audits. The audit investigation unit is up and running as part of the newly created Professional Oversight Board for Accountancy, itself part of the newly expanded Financial Reporting Council.
	Finally, and most importantly in the context of new clause 9, the Auditing Practices Board has been taken out of the control of the professional bodies, brought into the expanded Financial Reporting Council family and given responsibility for setting ethical standards for auditors on auditor independence. We now have independent standard-setting for audit standards. That covers a lot more than just the provision of non-audit services and the rotation of auditors.
	There are five standards and they cover, to take some examples at random from a lengthy list, issues such as financial relationships, employment relationships, family and other personal relationships, fees, remuneration and gifts, litigation and the overall principles of integrity, independence and objectivity. They set out clearly the standards to which auditors are expected to adhere in the provision of non-audit services to a company to which they also provide audit services more broadly than could a legislative list that simply banned certain services.
	I accept my hon. Friend's objectives in tabling his new clause, but I am not convinced that the solution he has chosen would work. It has been tried in the US, but we have seen nothing to change our view that lots of rules mean only lots of lawyers looking for ways to get round the rules. The new clause lists three services that it would be unacceptable for an auditor to provide for a client, but that might imply by omission that other services are acceptable. That is clearly not the case. If the rules cover long association with a company and the provision of non-audit services, why should they not cover all the other threats to auditors' integrity? There are many, as I have demonstrated, and we need to ensure that they are all covered. That is where standards play an important role.
	To anticipate my hon. Friend's reply, I should say that just because the standards are not set in legislation, it does not mean that they have no force: they do. They are not just "guidance" or "recommendations". Auditing is a statutory function and to carry it out an auditor must be a member of a recognised supervisory body. The supervisory bodies are required by law to have rules and practices designed to ensure that audit work is carried out with integrity and without conflicts of interest. Clauses 1 and 2 require such standards for the purposes of those rules to be set by a body independent of the profession and for the recognised supervisory bodies to require the auditors registered with them to comply with those standards. Compliance with those standards is rigorously monitored and enforced. Clauses 1 and 2 increase the independence of audit monitoring and disciplinary processes by requiring that they must be carried out independently of the recognised supervisory bodies where the audits are of public interest.
	I hope that I have given my hon. Friend some reassurance. I do not take the defensive approach that the hon. Member for Sutton Coldfield takes, because I share my hon. Friend's concerns that we need to ensure that a cosy relationship does not develop between auditors and the companies that they audit. We need much more clarity and transparency in respect of the value and provision of non-audit services to firms. The principles-based approach, with the additional independence and rigour brought in by the legislation, is the most appropriate way to achieve those objectives.

Jim Cousins: The debate has been short but illuminating. I especially thank my right hon. Friend the Minister for her remarks and for taking this opportunity to set out the Government's approach. We shall obviously be able to debate all these matters again in the context of the companies Bill that we have been promised this afternoon. That is a joyous prospect for those of us gathered here today. What an opportunity it will be to convince many of our colleagues that they should join us in considering these intricate and interesting matters.
	I sound a warning to my right hon. Friend, however: the test for a rules-based or a principles-based approach cannot be absolute. Through the International Accounting Standards Board, we must seek reconciliation between the different approaches being developed in the United States and in Europe. It would be a disaster if we closed our minds, and our legislation, to acceptance of some of the rules-based requirements that are emerging from the US. That could produce tensions for companies registered both in this country and the United States, especially the larger ones. We must avoid the conflict between the two systems that is now a real possibility.
	We may want to create a truly competitive market in the provision of audit services, but we are already in an extreme situation. The competitive market is eroding before our eyes. When we return to these matters, I suspect that the Minister will find that the measures required to preserve a competitive market are even more extreme than those she is willing to consider at present.
	Finally, Senator Sarbanes himself wanted to go for radical separation of audit and non-audit services, especially in relation to tax avoidance, which has become a profitable global industry of the most powerful kind. The Government tried to address that aspect in the Finance Act 2004, which requires for the first time the registration of tax avoidance schemes—or tax mitigation schemes, if that is a more acceptable formulation. A real issue will emerge under our regime for companies supplying the same company with both tax mitigation devices and audit services. Whatever happens to new clause 9, that issue will certainly not go away. None the less, I beg to ask leave to withdraw the motion.
	Motion and clause, by leave, withdrawn.

Clause 21
	 — 
	Power to require documents and information

Andrew Mitchell: I beg to move amendment No. 1, in page 27, line 29, at beginning insert
	'Where there appears to be good reason.'.

Mr. Deputy Speaker: With this it will be convenient to discuss the following amendments: No. 20, in page 27, line 29, after '(1)', insert
	'If he thinks there is good reason to do so'.
	No. 2, in page 29, line 12, in clause 23, leave out 'thinks' and insert 'reasonably believes'.
	No. 3, in page 29, line 12, in clause 23, after 'thinks', insert 'on reasonable grounds'.
	No. 21, in page 29, leave out line 14 and insert—
	'(2) Subject to subsection (9) an inspector or investigator may at all reasonable times within the first 30 days following his authorisation under subsection (1)(a)–'.
	No. 4, in page 29, line 14, after 'may', insert
	', subject to subsection (3A),'.
	No. 5, in page 29, line 14, at end insert 'during normal office hours'.
	No. 6, in page 29, line 16, after 'there', insert 'during normal office hours'.
	No. 7, in page 29, line 16, leave out 'thinks' and insert 'reasonably believes'.
	No. 8, in page 29, line 16, after 'necessary', insert 'on reasonable grounds'.
	No. 9, in page 29, line 16, after 'necessary', insert
	', not exceeding one month,'.
	No. 10, in page 29, line 16, after 'necessary', insert
	'not exceeding one month (or such longer periods as may be authorised by the Secretary of State)'.
	No. 22, in page 29, line 17, at end insert
	'provided that unless authorised to do so by the Secretary of State under subsection (9) he shall not remain on the relevant premises for the whole or substantially the whole of the company's normal working hours for a period of more than 7 consecutive days.'.
	No. 11, in page 29, line 17, at end insert—
	'(2A) Except when the investigator or inspector reasonably believes that the exercise of his functions under this Part would otherwise be seriously impaired the powers under subsection (2) shall be exercised between the hours of 9 am and 5.30 pm and between Monday and Friday.'.
	No. 23, in page 29, line 18, after second 'premises', insert
	', or if in mixed use the parts or parts thereof,'.
	No. 12, in page 29, line 20, after subsection (3) insert—
	'(3A) Where the relevant premises consist either of premises all parts of which are used for residential purposes or of premises which can only be accessed via premises or parts of premises which are used for residential purposes an inspector or investigator shall not exercise his powers under subsection (2) without a warrant issued under section 453C by a justice of the peace and if such a warrant is issued the inspector's or investigator's powers under subsection (2) shall be limited to his powers under such warrant.'.
	No. 13, in page 29, line 21, after '(2)', insert
	'subject to the terms of any warrant issued under section 453C'.
	No. 24, in page 29, line 32, at end insert—
	'(9) The Secretary of State may on the written request of the inspector or investigator—
	(a) if satisfied that it is necessary for the purpose mentioned in subsection 1(b) extend for a period which he may specify beyond the initial 30 days the period of authorisation under subsection 1(a); or
	(b) extend the number of consecutive days during which the inspector or investigator may remain on the relevant premises.
	(10) There shall be no limit on the number of extensions which may be requested of or granted by the Secretary of State under subsection (9).'.
	No. 14, in page 30, line 7, at end insert—
	'(c) the grounds for his belief that entry onto the company's premises will and that remaining thereon for a period will be necessary to materially assist him in the exercise of his functions under this Part,'.
	No. 15, in page 30, line 42, at end insert—
	' "453 C Entry into residential premises
	(1) A justice of the peace may issue a warrant under section 453A(3A) if satisfied on information on oath given by or on behalf of the inspector or investigator authorised under section 453A(3A) that there are reasonable grounds for believing that access to any premises falling within section 453A(3A) will materially assist the inspector or investigator in the exercise of his functions under this Part.
	(2) A warrant under section 453A(3A) may authorise the inspector or investigator, accompanied by a constable and any persons thought appropriate under section 453A(4) and any other constables—
	(a) to enter the premises, and
	(b) to remain there for such period as the inspector or investigator thinks necessary, or for such period as the warrant may provide, for the purpose mentioned in subsection 453A(1)(b).
	(3) A warrant may be issued under section 453A(3A) subject to conditions.
	(4) Sections 448(5) and 448(9) shall apply to the issue of a warrant under section 453A(3A) as they apply to the issue of a warrant under section 448(1).".'.
	No. 16, in page 59, line 31, in schedule 2, at end insert—
	'(d) any person accompanying an inspector or investigator pursuant to section 453A(3A).'.
	Government amendments Nos. 17 and 18.

Andrew Mitchell: We now come to the guts of the Opposition's concerns about the Bill: investigations and the powers of investigators. I draw the attention of the House to amendments Nos. 1 and 20, in which we argue that the Secretary of State must have "good reason".
	Clause 21 reformulates section 447 of the Companies Act 1985 and excludes the requirement under that section for the Secretary of State to act only if he thinks there is good reason to do so. The amendments propose alternative forms of words but which have the same intention: to maintain in section 447 an express requirement for the Secretary of State to act only where it appears to him or her that there is good reason to do so.
	Amendment No. 1 adopts the form of words found in section 167(1) of the Financial Services and Markets Act 2000, which provides for the Financial Services Authority's power to appoint persons to carry out general investigations. Amendment No. 20 retains the form of words in section 447 of the 1985 Act. A similar amendment was proposed and defeated in the other place on 22 March and was proposed and debated in the Standing Committee on 16 September. I subsequently withdrew it, to give the House an opportunity of considering the proposal further today.
	The Government's answer throughout has been doggedly to maintain that those words are superfluous and add nothing to the requirements imposed by general administrative law. In Committee, the Minister suggested further reasons for the Government's refusal to adopt such an amendment. First, she suggested that there is a thorough approach to vetting complaints that give rise to investigations under section 447 of the 1985 Act, which will not change if those words are omitted. Secondly, she suggested that the courts have never given any special meaning to the words, which she described as
	"a somewhat antiquated expression with no transparent, obvious and precise meaning."
	Thirdly, as a consequence of the second point, she said that the phrase
	"could, over time, produce a result that we do not want to achieve by narrowing or widening the circumstances in which the power can be used." ."—[Official Report, Standing Committee A, 16 September 2004; c. 89.]
	I am sorry to tell the Minister that neither my colleagues nor I found those arguments remotely convincing. There are compelling answers to those points and strong, positive reasons to accept one or other of the amendments.
	I challenge the Minister's assurance that the approach to vetting will not change if the words are omitted. That is dangerous speculation on her part. In fact, the thorough and admirable vetting procedures to which she referred that are carried out in practice by the Secretary of State's officials at the companies investigation branch of the Department of Trade and Industry have come about precisely because section 447 of the 1985 Act has hitherto contained the words.
	The officials who carry out the vetting procedures will have at the forefront of their minds at every stage these questions: "Is there good reason to take the step that I am contemplating? What is that good reason? How do I express it? Can I justify it if challenged?" That is why the vetting procedures have evolved in the way that they have. No one can assert with confidence that rigour will be maintained in the future, as it has been in the past, if those important words simply vanish from the lexicon of that section, new and challenging situations develop or budgetary constraints begin to bite on the Department's budget. The words are not surplus. The discipline imposed on officials by the inclusion of explicit words of limitation in a section under the authority of which they propose to act is a powerful, positive justification for adopting the amendment.
	The criticism of the words "good reason" by the Minister as "antiquated" and lacking transparency or precise meaning was rather surprising. The same so-called antiquated and precise phrase has been incorporated in the parallel section 167 of Financial Services and Markets Act 2000—legislation enacted by the Government in the past four years. Something that happened four years ago is surely not yet to be relegated to antiquity, even if four years certainly feels like a very long time under this Government. The words were included because they have a real context.
	The Government have not suggested that developments in administrative law have now made redundant words that were, by necessary implication, considered essential and not superfluous in 2000. The Minister conceded on two occasions in Committee—I draw her attention to columns 88 and 102—that the Secretary of State will have to give sound reasons for using the powers. She is right: let the clause say so expressly to stand as a reminder and a check.
	The Government argue that the words have not been judicially defined and may later be construed as unexpectedly to narrow or, indeed, widen the powers intended, but they are missing the bigger picture. It may be that the words have never been subjected to judicial interpretation because their plain and natural meaning is clear enough. For example, where wording that contains the notion of reasonableness has been considered, the courts have recognised the fact that what is or is not reasonable will depend on the facts in any case. It is plain beyond argument that a similar approach will attach to any consideration of what is or is not a good reason to act.
	The Minister makes the criticism that the phrase is not precisely defined, but that dodges the real question that it is incumbent on the Government to introduce legislation that precisely defines the powers and discretions given to Ministers and their officials. Even without attempting to pre-empt any judicial interpretation, I suggest that the more obvious and more serious risk of unexpected and undesirable consequences of interpretation springs from the Government's refusal to incorporate the words suggested in the amendment. The reason is plain to see: the requirement for good reason to act appears in other closely analogous provisions in other Acts and, crucially, in similar provisions in the Companies Act 1985.
	Leaving such words out of proposed new section 447 of the Companies Act 1985 represents a great risk. The courts will be induced to conclude that Parliament's intention was for the provision to confer far wider executive power or discretion on the Secretary of State than that enjoyed under analogous provisions that are expressly constrained by the "good reason" requirement. If that is the Government's intention, let that be expressed, exposed to debate and set out in the Bill. The power should not be expanded on by stealth.
	I shall cite the analogous provisions to which I referred. First, under the heading "Appointment of persons to carry out general investigations", section 167(1) of the Financial Services and Markets Act 2000—as enacted by the Government—which is the exact counterpart to section 447 of the Companies Act 1985, states:
	"If it appears to the Authority or the Secretary of State . . . that there is good reason for doing so, the investigating authority may appoint one or more competent persons to conduct an investigation on its behalf".
	Secondly, section 442 of the Companies Act 1985 confers powers on the Secretary of State to appoint inspectors to report on company ownership. It states:
	"Where it appears to the Secretary of State that there is good reason to do so, he may appoint one or more competent inspectors".
	Thirdly, section 444 of the 1985 Act confers powers on the Secretary of State to obtain information as to those interested in shares. It states:
	"If it appears to the Secretary of State that there is good reason to investigate the ownership of any shares in or debentures of a company and that it is unnecessary to appoint inspectors for the purpose, he may require any person"—
	and so on.
	The Government seem to rely on general administrative law as the bedrock of the limitations on the Secretary of State's powers, but administrative law is a fluid discipline and the legislature has no control on its development. By leaving out the words "good reason", yet not inserting any other words of limitation, the Government are denying themselves and the legislature a voice in defining the scope of law. They are replacing bedrock with shifting sands, and more importantly they are failing to address the fundamental question of the intended effective limit on the Secretary of State's powers. It is worth remembering that if words are interpreted as narrowing the power that Parliament intends to confer, the remedy is in our own hands. However, if a power is conferred by statute that is far wider than that intended, it creates a licence for future abuse.
	There is a further compelling and positive reason to include such words in new section 447. They would act as a signpost to not only officials, but a lay person or company director who was the object of the exercise of the powers. The corollary of the Government's position is that an onus will be placed on an individual either to have knowledge of, or to obtain legal advice on, the complex area of administrative law. It is right that legislation should be internally comprehensible to the man in the street as well as practitioners at the administrative Bar, so it would be unfair to pass legislation that would impose such a burden. Given that the Executive could subject companies and individuals to intrusive action, the Bill should plainly set out the Secretary of State's obligation to act for good reason.
	Amendments Nos. 12 and 15, which address relevant premises, characterise the amendments that I have tabled to clauses 23 and 24. Those clauses will insert new sections 453A, 453B and 453C in the 1985 Act, thus conferring on inspectors and investigators the entirely new power to require entry to, and to remain on, relevant premises. Relevant premises are defined in proposed new section 453A(3) as
	"premises which the inspector or investigator believe are used (wholly or partly) for the purposes of the company's business."
	The provision will broaden for the first time the powers of inspectors and investigators by permitting them to enter into and remain on domestic and residential premises. Section 448 of the 1985 Act provides that investigators and inspectors must obtain a warrant before they are able to enter any premises.
	The amendments would require inspectors and investigators to get a warrant before entering and remaining on residential premises. Their purpose is to restrict the possible abuse of the broad and largely unfettered power of entry and to control its impact in situations in which domestic or family circumstances overlap with company activity. In reality, they would preserve the status quo for residential property without restricting the powers to enter and remain on separate company premises. A similar amendment was moved and debated in Committee. Regrettably, it was rejected by the Government. I hope to be more fortunate in attracting the Minister's support this time.
	The matter is of real concern. Investigations pursuant to the powers conferred by section 447 of the 1985 Act are frequently targeted at small businesses. Such businesses often trade from, or have a registered office at, the director's home address, or they use domestic premises for storage if space at trading premises is constrained. No one disputes that there may be cases in which it will be necessary, in order not to frustrate the purposes of an investigation, to have access to premises that may be of mixed use. However, the power to enter into and to remain on company premises is highly intrusive. How much greater is the intrusion and how much more carefully must we tread if the power is to be operated in respect of domestic property, which means an individual's or a family's home?
	As drafted, the Bill allows the Secretary of State to appoint an official, although she has no need to show good reason for doing so. That authorisation will be made as a matter of course at the beginning of every investigation, whether it is necessary or not. The official will be empowered to enter into commercial or domestic premises merely because he thinks that that will materially assist him. No mechanism requires him to explain why he has come to that conclusion.
	The official can remain on the premises without limit of time so long as he continues to think in that way, although no one can know if and when he may change his mind or exceed his right to remain. He may be accompanied by one person or as many as he sees fit. Further, there is no requirement that there should be a lack of co-operation before the powers are exercisable, contrary to what the Minister appeared to understand in Committee. That is a chilling prospect and it would be an abdication of Parliament's function to protect the citizen to allow a Bill in this form to be passed without better restraints against abuse.
	The Government were exhorted in Committee to consider the amendment in that context by no less than a distinguished former Labour Minister, the hon. Member for Stoke-on-Trent, Central (Mr. Fisher). He said:
	"All these amendments say that Parliament must think carefully about the way that we word powers given to civil servants. Because the Minister has total confidence in her carefulness, reasonableness and intelligence, and in the carefulness, reasonableness and intelligence of her ministerial colleagues, she knows that she and they will not abuse these powers. But we always legislate not just for the Ministers who will introduce the powers, but for future Ministers, who often act in very different circumstances. Future Governments may have very different intentions and different pressures on them.
	We all know from bitter experience in recent years that the thing that most undermines confidence in Parliament and most leads Parliament to take bad decisions is Ministers' sense that something has to be done in response to a particular crisis. In those circumstances, the hon. Gentleman's warnings"—
	my warnings—
	"about the powers that are delegated to civil servants are very important."
	The hon. Gentleman finished by saying:
	"The hon. Gentleman"—
	again, he meant me—
	"was careful to heap praise on the Minister and the Secretary of State for being reasonable people. He was genuine in that. These are reasonable Ministers and we can be confident that they will not allow their civil servants to abuse these powers. But I hope that between now and consideration on Report the Minister will consider the wording and perhaps devise some small but crucial amendments to some of these powers to ensure that we retain ministerial control over some powers in the Bill so that they cannot inadvertently be misused in different circumstances in the future."—[Official Report, Standing Committee A, 16 September 2004; c. 100–01.]
	Those were not the words of Members of the Conservative Front Bench or, indeed, of the Liberal party, who would agree with them; they were the words of an experienced former Labour Minister and express succinctly and eloquently the powerful argument that we are trying to make.

Greg Knight: I am less satisfied with ministerial control in that area than with judicial control. Would it not be much better to allow the courts to say that the use of the powers must be reasonable instead of allowing a decision to be made on the whim of a transient Minister?

Andrew Mitchell: My right hon. Friend has put his finger on an important point. Parliament must add the necessary safeguards to the Bill so the courts can exercise them. The safeguards on which the Minister relies sadly offer little reassurance. In Committee, she referred to the obligation on inspectors when seeking entry to produce proof of identity and provide a statement of their powers and the company occupier's obligations under proposed new section 453B. Those responsibilities will be prescribed by regulations, but we have not been given any comfort about their content.
	Will the Minister give us an undertaking that the regulations will require that the statement will make it unequivocally clear to people on whom it is served that they may, without penalty, refuse to admit the inspector or may request that he and anyone accompanying them should leave? The occupier may believe that the investigation is to take place at an unreasonable time, but will the statement provide examples of such circumstances? Will the statement make it clear that officials have no power to search for or seize documents, and will it refer occupiers to the code of conduct and the published complaints procedure for Department of Trade and Industry officials?
	The Minister reminded us that a thorough vetting procedure would be completed before the visit took place and that the Secretary of State must give sound reasons for authorising an investigation. In fact, I cannot find any obligation on the Secretary of State to give any reasons to anybody. In Committee, the Minister resisted an amendment that provided expressly for the Secretary of State to have good reason for authorising an investigation, as I explained earlier. I agree with her about the liabilities that directors of limited liability companies enjoy and the responsibilities, such as the exposure to investigations, that are a natural consequence of those privileges. However, those responsibilities may not be assumed willingly by spouses and family members, who may be reluctant to accept that business activities should be carried out in their home. The Bill, however, exposes them to the full force of untrammelled officialdom in their home and the prospect of being hauled before the courts on the inspector's written certification.
	The Minister reminded us that the Bill does not entitle inspectors to enter premises by force. However, it entitles them to visit people at home and seek entry with the threat, which will no doubt be set out in the statement issued pursuant to new section 453B, of contempt of court proceedings for non-co-operation. It entitles inspectors to enter premises and remain there, even though no one connected with the company is present. We are assured that, during that time, they will not conduct searches of any kind. The availability of redress, which the Minister accepted was important, turns out to be an action for trespass. Given the way in which the Bill is drafted, any such action would require knowledge of administrative law, practice and quite possibly procedure.
	The Minister objected that the amendment requiring a warrant to enter domestic premises would mean the inspector turning up accompanied by a policeman. For reasons that escape me, she appeared to conclude that that automatically would create the impression that criminal activity was being investigated and would make the investigation public. I do not follow her logic, as there may be any number of reasons why a police officer should visit a house; such a visit does not imply the conduct of a criminal investigation. The presence of a neutral third party such as a police officer may be a comfort for people affected by the potentially oppressive exercise of the powers.
	I am sure that the Minister accepts that my words have added weight, given the fact that since we began our deliberations on the Bill I have become the Conservative spokesman on policing. The powers are highly intrusive and affect the private lives of children and people without any direct connection to the company's business. Where such intrusion is necessary, it should be proportionate, and there must be effective safeguards against abuse, tested not by the high standards and integrity of the Minister and her officials but by measures to deal with unforeseeable pressures that may operate in a very different political climate.
	The Bill has got the balance wrong. The requirement for inspectors and investigators to obtain a warrant, which may be subject to conditions, before entering and remaining on residential premises provides an effective safeguard against over-zealous officialdom or abuse, and ensures that any necessary intrusion is carefully and independently weighed for proportionality before it takes place.
	The third of the four subjects that we are raising under this set of amendments is characterised by amendment No. 11. The purpose of this and its sister amendments is to include in section 453A, which is to be introduced into the 1985 Act by clause 23, a clear and express limit on the times during which the power to enter and remain on premises—as I have already underlined to the House, these may include domestic as well as business premises—can be exercised by inspectors. In the present form of the Bill, the right to exercise the powers is triggered by what the inspector or investigator thinks would assist him materially in the exercise of his functions and what, in the case of remaining on premises, is necessary for that purpose. The only limitation in the Bill on the exercise of this power is that it may be exercised "at all reasonable times".
	The amendment would introduce a subsection into section 453A to make clearer what will in the normal case be regarded as a reasonable time. The exercise of the powers would be limited effectively to the normal working hours of a company unless exercise of the powers only during that time period would seriously impair the work of officials. The limitation applies both to the power of entry and to the period during which an investigator or inspector may remain on the premises.

Greg Knight: My hon. Friend has taken me with him thus far, but I am a little concerned about the provisions. If the inspectors were in effect allowed to work only during normal office hours, would that not enable a dishonest and unscrupulous director to dispose of damning evidence outside office hours, knowing that the inspector could not possibly appear on his doorstep?

Andrew Mitchell: Once again, my right hon. Friend makes a very good point, to which I shall come shortly.
	As I pointed out in Committee, the explanatory notes state:
	"A visit to business premises outside the company's trading hours would not ordinarily be regarded as taking place at a reasonable time."
	The amendment neatly encapsulates what those preparing the Bill clearly intended, and it is difficult to see what objection there can be to including my amendment in the form proposed.
	No guidance is given in the Bill as to what reasonable times might be. The Government suggested in another place a number of alternative situations as a reason for not rising to the drafting challenge: the possibility that a company trades only at night; that it might not have its own normal business hours; or that it might change them in order to frustrate investigation, the very point made a moment ago by my right hon. Friend.
	In Committee, the Minister refused to adopt amendments that sought to limit the exercise of the entry and remainder powers to normal office hours or to define "reasonable times" as 9 am to 5.30 pm. The grounds for refusing to accept the amendments were, respectively, that a company may not have normal office hours, and that if the hours between 9 and 5.30 were set out as normal office hours, companies would trade outside those hours to avoid or frustrate investigation.
	The amendment provides answers to both concerns. First, it refers to "normal working hours", a phrase that encompasses a wider range of activity than the phrase "office hours". Secondly, in the case of companies whose activities extend to evenings and weekends, the inspector would not be precluded from pursuing investigations at those times if necessary, because they would be the company's normal working hours. In any event, the amendment preserves the inspector's power to enter premises at any other times, provided that he reasonably believes that to be necessary because his investigative functions otherwise would be seriously impaired.
	Our amendment provides desirable certainty for companies and the public, as well for Department of Trade and Industry officials, about what, in the vast majority of cases, will be reasonable times for the exercise of powers of entry, while preserving the power of inspectors to operate at other times when their investigations otherwise would be seriously impaired. At other times and during other periods, investigators will be required to act at reasonable times.
	The final change is characterised by amendment No. 24, which limits officials' wide powers in proposed new section 453A of the Companies Act 1985 to enter and remain on premises. First, the amendment imposes a one-month time limit within which inspectors may initially seek entry into premises, which may be mixed business-domestic premises as well as commercial premises. Secondly, it limits the period in which investigators may continuously remain at a company's premises without express authorisation by the Secretary of State. A limit on the period in which the power of entry may be exercised should encourage inspectors to get on with their investigations and not hang about squatting in somebody's home. It provides an effective safeguard against possible abuse in the form of excessively long, drawn-out investigations that cease to be fruitful and begin to border on the oppressive.
	In the case of genuinely lengthy and complex investigations, the amendment provides the Secretary of State with the power to extend the one-month period. The requirement for reauthorisation should focus the minds of the Secretary of State and officials on the reasonableness of continuing to use those powers and requires circumstances and considerations to be reviewed and formally recorded regularly.
	The intention is that, unlike investigations conducted under section 431 of the 1995 Act, which are intended to be public, investigations under proposed new section 447 should be conducted confidentially and without publicity. That addresses the concern that the continued presence of inspectors at a company's trading premises could result effectively in the investigation being publicised.
	In Committee, I raised the example of a business that was largely a front-of-house operation to which customers or the public had access. The presence of an investigation would be effectively and publicly advertised by the persistent presence over a period of time of DTI inspectors on the premises asking questions of employees in front of customers, or even asking questions of customers themselves. Such practices are envisaged in proposed new section 447(3) of the 1985 Act, and nothing could be calculated to cause greater damage to the reputation of a company, which might prove to be entirely innocent of any wrongdoing.
	It is possible to envisage a different political climate in which inspectors might or might not be encouraged or induced by political pressures to remain on the premises of a particular company—perhaps a company that conducts a politically controversial, but lawful and legitimate activity—in order to close down its trading operations by stealth. That might involve driving away customers by persistent questioning and making employees uncomfortable or insecure by a continuous and oppressive presence in the workplace. The possibility of such abuse is effectively balanced by the requirement to seek, explain and justify the need to attend a business premises continuously for an extended period.

John Gummer: Will my hon. Friend point out to the House that that scenario is not as far fetched as it is sometimes made out to be? In a number of our fellow member states of the European Union, political pressure can result in the use of such powers. That is a possibility and, as my hon. Friend said, it should not be discounted merely because we have been lucky enough to live in an atmosphere in which that has not happened to any great extent in the past.

Andrew Mitchell: My right hon. Friend makes a good point. Those concerns apply to the potentially oppressive and excessive presence of inspectors at domestic or residential premises, and I have no doubt that his point is correct. We did not have the pleasure of his presence in Committee, but I assure him that the Opposition made such points trenchantly.
	In conclusion, the investigatory powers are significant and Parliament should not grant them without good reason. Conservative Members reluctantly accept the Minister's general point that investigatory powers must be enhanced, but the legislation is defective in the ways that I have set out this afternoon.
	I have set out at some length the safeguards that we seek to place in the Bill, which would deal with how long an inspector can stay on premises, when they can enter those premises and the test they must pass in order to do so. In Committee, I drew attention to a likely scenario in which a harassed mother is feeding her children, with an aged, possibly infirm, relative upstairs, and an inspector is able to enter the premises without adequately demonstrating that they should be there. The inspector then stays on an open-ended basis for as long as they wish without being bound to answer questions of the kind that I propose.
	These are strong powers, as was pointed out in Committee by a former Labour Minister who listened to the arguments advanced on both sides. The measure would significantly enhance the powers of inspectors at the expense of our constituents. The Minister will have to make an extraordinarily good case in order to undermine my arguments and to prevent us from dividing the House.

Michael Fallon: There are some 23 amendments in this group, and I hope that the House will forgive me if I do not deal with all of them. I want to support my hon. Friend the Member for Sutton Coldfield (Mr. Mitchell) on amendment No. 1. His case is so overwhelming that I am surprised to learn that it was not supported in Committee. Adding these words to the clause would do no harm to anybody and would considerably strengthen the position. I hope that the Minister, with her usual courtesy, will at least do the House the service of explaining why that cannot be done. I shall certainly support the amendment if it is pressed to a Division.
	I also support my hon. Friend on amendments Nos. 14 to 16, which deal with the investigation of premises. He made some powerful points and I hope that they will be answered.
	I want particularly to speak to amendment No. 2. Clause 23(1)(b) states that the inspector or investigator may act in relation to a company if
	"he thinks that to do so will materially assist him in the exercise of his functions".
	I do not like using "thinks" as a test. Indeed, my hon. Friend the Member for Sutton Coldfield proposes in other amendments to remove the word "thinks" and either to add to it or to replace it with a test of reasonable belief. Is it enough for an investigator to stand up in a court of law and say, "I undertook this investigation and entered these premises because I thought it would assist me"? I am not a lawyer, but I presume that if pressed he would be able to say, "Well, that is what I thought at the time; I may not think it now, but I thought it then", or, "I was misguided, and it turned out that I was wrong, but that is what I thought."
	That test is not sufficient, and I should prefer it to be replaced by the test of reasonable belief. The word "thinks" is entirely subjective, and it would be extremely unfortunate were it left in the clause. I hope that the Minister will explain why it is used and whether that has any precedent in previous legislation that allows people to enter or to remain on premises.

John Gummer: I sometimes think that it is helpful to the House to insert the negative of an amendment into a Bill in order to demonstrate why it is necessary. The Minister might find it reasonable to suggest that if one does not insert the words in amendment No. 1,
	"Where there appears to be good reason",
	one is really saying, "Even when there appears not to be good reason." If the Minister does not insert those words, she is effectively condoning circumstances in which there appears to be no good reason for such activities to take place. In my long experience of business, I have met with nothing but courtesy and helpfulness from those concerned with companies' money, and I therefore speak without angst about people who are likely to perform the activities that we are considering. I simply want to put the case for our being careful to ensure that the public are happy about the way in which we deal with investigations of all kinds.
	It is possible for investigations to arise perfectly properly from misinformation and misunderstanding or simply because people have presented their accounts in a way that leads to questions that are not immediately answerable. Some investigations will, therefore, always be carried out, in reasonable circumstances, of people who have nothing to hide but for whom it would be embarrassing if it were thought that they had behaved other than correctly.
	I therefore do not suggest that there will not be occasions when investigations take place to protect the public and ensure that there is no dishonesty, and it is discovered that no dishonesty has occurred and that there was no reason for the investigation, which was nevertheless properly carried out. However, it is difficult for one's constituents to understand that. Several constituents have approached me to point out the huge damage done to them by investigations that have turned out to be groundless. I cannot blame the investigatory authorities because the facts as presented to them made an investigation necessary. In some cases, the way in which it was conducted or the fact that it was made public had a serious effect on business.
	It is proper for us to consider the wording carefully for two reasons. First, that would protect our constituents in the circumstances in which they are investigated. Secondly, it is important to ensure that our constituents feel that somebody has thought about the circumstances. I have participated in several discussions about changes to, for example, the Finance Bill. It is clear from them that, the more complicated we make matters, the more our constituents feel harried and harassed simply by the difficulty of understanding what they should be doing.
	That is also true about responsibilities that we place on directors' shoulders. I am in favour of that—I believe that directors should have more responsibilities. However, the quid quo pro is recognising that there is a fear and a concern that needs to be assuaged. I wonder whether it would be easy to say to a constituent that the Government are not prepared to insist that some things happen only when there appears to be a good reason. I would not like to hold that discussion in my surgery.
	Would the Minister be happy to sit opposite someone who says, "This happened and there was no good reason for it. I've been told that it could happen because there was no protection"? I believe that she would find that difficult. She might have an esoteric argument that she could present in Committee, but face to face with a constituent, she would find it hard.

Michael Fallon: Would it not be worse if my right hon. Friend had to answer his constituent by saying, "The investigation was some sort of fishing expedition that's lawful under the Bill"?

John Gummer: I agree but I was trying to address the Minister. It would be even more embarrassing for her. She would have to say, "I stopped something happening in the House of Commons so that fishing expeditions could go on." At least I could say, "I fought against this because I don't approve of fishing expeditions." The Minister would have to say that she was in favour of fishing expeditions. That would be difficult for her.
	I should like to turn to amendment No. 2, which proposes replacing the word "thinks" with the words "reasonably believes". I have a number of constituents who think that Britain should leave the European Union. I think that they are entirely wrong. That is not a reasonable proposition, in my opinion, but there are those who hold that view. Some of my constituents think that Joseph Smith found the Book of Mormon on a hill, where he was led by the angel Moroni. They think that, but I think that they are entirely wrong, and that it is not possible for them reasonably to believe it as a matter of fact. I certainly do not think that it is possible reasonably to believe that Britain should leave the European Union. There is, therefore, a fundamental difference between "thinks" and "reasonably believes", and it is quite clear that, in normal circumstances, we can draw that distinction.
	I find it extremely hard to understand why the Government do not like the words "reasonably believes". They are a reasonable Government, I am often told. They certainly appear to be a believing Government, otherwise the Prime Minister would not have been able to come to the House to speak on the Iraq war in the way in which he did. So they are a believing Government; they are also a thinking Government. What is wrong with the words "reasonably believes"?
	What is wrong with the words "on reasonable grounds", which are proposed in amendment No. 3? Why should "thinks" be better than "on reasonable grounds"? In normal circumstances, we know precisely the distinction between the two concepts. Thinking involves a matter of opinion. People think the most ridiculous things, but they cannot reasonably believe those things, and they cannot have reasonable grounds for believing them.
	Amendment No. 5 proposes the inclusion of the words "during normal office hours". The Government often talk about the importance of entrepreneurial activity, and they are determined to appear in favour of small businesses. However, they do not seem to realise how small businesses begin and bear their first fruits. They often begin in a domestic situation, in circumstances in which the business is able to do what it needs to do because it does not have the overheads that a larger business would have. It is important to realise that we have more unconventional businesses now than we have ever had before. It is therefore reasonable to include a provision about normal office hours to protect people from unreasonable intervention and interference in certain circumstances.
	I also want to point out the importance of some of the time limits that are being proposed. I do not know anything about the Minister's private life or her private reactions, but a large number of my constituents are easily frightened, even when they have no reason to be. We have all had people come into our surgeries to describe cases in which they are entirely innocent, but in which they have been frightened by the tone of a letter, by the way in which people have approached them, or by the fact that they have been held without being given an answer for a long time. All those things cause fear where fear is unnecessary.
	When Members of Parliament are asked why they came into politics, most would say that one of the reasons was to ensure that people were not bullied, and to stand up for people who found it difficult to stand up for themselves. These provisions are an example of how we can, in a small way, do something for such people. We are merely saying that there are necessary interferences in the way in which individuals carry on their lives, particularly if their lives are to some extent public, in the sense that those people run businesses. We are not objecting to that, or making any suggestion that there should not be investigations. Nor are we saying that such investigations should not be given all the aid that they should necessarily and properly have. We are saying something quite different—namely, that the terms of those investigations should not unnecessarily raise fears or concerns among people who are innocent and have no real reason to fear or be concerned. Therefore I hope that the Minister will think seriously about these small amendments, which are nevertheless important. What they do is assure the public that we have thought through the circumstances in which they may find themselves.
	That is my last point: Parliament is often thought ill of because the public do not believe that we have put ourselves in their position in such ordinary, common circumstances. They think that we have not felt for them in relation to how they may be frightened or concerned if matters go on longer than is necessary; that we have not thought that they can be seriously inconvenienced or have their business entirely closed down if people act without good reason, act because they "think" rather than "reasonably believe", or act because they "think" rather than "have reasonable grounds".
	I hope that the Minister will recognise that this is not mere nit-picking about individual words, but a different way of examining the relationship between Parliament and the public. If the public understood that we understood the positions in which they quite easily find themselves, they would be more willing to accept the legislation that we pass and to have respect for this institution. They would feel that when the Minister went to her surgery, she would not have to pretend—she could say that she insisted that none of this was done unless there were reasonable grounds, unless people could reasonably expect, and unless there appeared to be good reasons. I did that. I did not need to be pushed by the House—I saw why it was sensible. If she cannot do that, it is an embarrassment to her, and I would hate to embarrass her or any of her colleagues.

Brian Cotter: I am particularly pleased to speak after the right hon. Member for Suffolk, Coastal (Mr. Gummer), who offered some good thinking and reasonable points, not least of which is that we have a duty in the House this afternoon to address the fact that we decide what we do in the circumstances that we see in front of us. He was right to make the point that circumstances do not always remain the same. Climates can change, and therefore changes can happen subtly. To use a different example, times have changed in relation to the way in which we must now face up to the threat of terrorism. Times can also change in other sorts of ways: future Governments could be less understanding and reasonable than the Minister is.
	I will not stray on to whether my constituents think differently from me about various issues, as I could get myself into trouble, not having thought about it beforehand. The right hon. Member for Suffolk, Coastal is right to make those points, however. Certainly, "reasonably believe" would define more clearly where we should go than "think".
	On this occasion, the hon. Member for Sutton Coldfield (Mr. Mitchell), as on many other occasions, has made some reasonable points, particularly with this set of amendments. We are appealing for reason from the Government on the basis that that must be applied in so many areas of investigation. It is right to argue that the new rights being granted open up the possibility of inspectors' abuse of power. The Bill would put only the barest limits on inspectors' rights to demand entry to domestic premises where they believe relevant company documents or information may be kept. The DTI inspectors will no longer have to have a search warrant under the Bill and will instead rely on authorisation from the Secretary of State. It is a concern that that permission will be granted virtually automatically once an investigation has begun. Investigators will be able to enter premises to obtain material merely if they "think", as has been said, that there are problems ahead.
	Without labouring the point too much, it is key that we hear from the Minister. On this occasion, it is not unreasonable to ask the Minister to address the issue of the difference between "thinking" and "reasonably believing".
	I agreed less strongly with some of the arguments advanced by the hon. Member for Sutton Coldfield than with others. We Liberal Democrats need to hear what the Minister thinks. Certainly we would be minded to support some key amendments. Amendments Nos. 17 and 18, for instance, deal with the prevention of inspectors gathering information about a business from disclosing it to unauthorised individuals. The Government have always conceded that information acquired by an accompanying person needs to be treated in a way that is consistent with the treatment of information obtained by an investigator or inspector. I should like the Minister to clarify the position.
	As I said at the outset and as others have said, we must ensure that what we decide does not infringe people's liberties, and provides a balance between the need to investigate and the need to respect those liberties.

Richard Page: I did not intend to speak, but I was provoked by what my right hon. Friend the Member for Suffolk, Coastal (Mr. Gummer) said about what amounted, in my view, to the number of angels that could dance on the head of a pin.
	As one with a degree of experience of running small businesses and knowing exactly what goes on, I think that we are deluding ourselves. Whether the Secretary of State "thinks" or—with respect to my hon. Friend the Member for Sutton Coldfield (Mr. Mitchell)—"appears" to have "good reason" could almost be described as a massive irrelevance. The Secretary of State will not "think" in any of these cases. All that will happen is that a series of regulations, rules and items of guidance will be conveyed down to the inspectors, who will take that material as their authority to proceed.
	We can fiddle around with this part of the Bill as much as we like, but—my hon. Friend the Member for Sutton Coldfield touched on this briefly—it is the wording of regulations that will mean something. Removing the protection that was there—the requirement for court orders—and descending to the "thinks" argument merely means directing the regulations towards the inspectors to give them the necessary authority.
	I listened with great interest to my right hon. Friend the Member for Suffolk, Coastal, who demonstrated his theological training with considerable skill and expertise. I enjoyed his speech, but it seemed to me massively irrelevant to the practicalities. I think we shall only be able to judge how the system will work when we see the rules and regulations, and see what authority is given to inspectors. That is the only way in which we shall know how companies will be treated when the inspector knocks at the door.

Jacqui Smith: Let me put the provisions in context. The statistics are fairly familiar by now, but they bear repeating. Some 5,000 complaints or referrals are received by the DTI's companies investigation branch each year. Following a thorough vetting process, only 5 per cent. of those result in investigations affecting around 300 companies—300 out of some 1.8 million registered companies, or less than 0.04 per cent.
	In 2002–03, following DTI investigations, 80 companies were wound up by the courts, 17 directors were disqualified and seven individuals were convicted of offences. Where appropriate, complaints were also referred to other regulators, such as the Financial Services Authority. The average investigation lasts about three months and there is a team of some 40 investigators.
	I make these points because, during the Bill's passage, and certainly today, I have heard some Members offer descriptions of the investigations provisions that might leave the uninformed listener with the impression that an army of investigators routinely conducts fishing expeditions into the affairs of many companies, the greater proportion of which should be left in peace to carry on with their legitimate business. The same listener might also have concluded that officials will be able to abuse their powers without fear of reprisal. If accurate, that would be very worrying, but as I said, those impressions are simply not the reality.

Greg Knight: Is an injustice less of an injustice if it happens to only a few people?

Jacqui Smith: Absolutely not, which is why I will respond in due course to all the issues that were raised, but I want first to set the context for the investigatory powers that we are considering. In citing their constituents' experience and so on, some Opposition Members have given the impression that we are talking about a mass investigation of lots of innocent companies. Some companies will have no case to answer; many will. It is of course right that those investigations be carried out in a proportionate manner, but the Bill's provisions will not change the basis on which they are carried out. This is not about casting our net more widely, nor is it about doing away with warrants in cases where they were previously needed, as the hon. Member for Weston-super-Mare (Brian Cotter) seemed to suggest. Nothing in the Bill would do away with the need for warrants in such cases, a point to which I shall return in more detail.
	The provisions are about increasing the effectiveness of the investigations undertaken. We want to ensure that we uncover misconduct and that we do so quickly. Investigators will not be able to operate on a whim and the investigatory powers cannot be used without a sound basis for using them. The fact is that, rather than an army of individuals hounding innocent firms, a small team of trained individuals is conducting investigations in response to a small number of carefully vetted complaints and referrals to discover whether there is any substance to them. Of course, that team is also ensuring that all firms can carry out their business in the confidence that those with whom they do business are also behaving honestly and responsibly. Those of us who are investing our money in, or spending it with, such businesses can also share that confidence.
	What investigators are doing is uncovering information. Such information might suggest that a criminal investigation is necessary, or that it would be in the public interest for the company to be wound up or its directors disqualified. Alternatively, such information could be referred to another, more appropriate regulator, such as a professional body. But the investigators are neither judge nor jury and they have no powers beyond those that enable them to obtain relevant information.
	In setting the context for these powers, we also need to remember that limited liability offers companies significant benefits. However, not all companies operate honestly or within the law. If we are not effective in addressing abuse of the company form, real harm can be caused. Indeed, the greatest impact is often on customers, investors or suppliers. Such abuse also undermines trust in the corporate framework, so it is crucial that this process should operate properly.
	Amendment No. 1 would add the phrase
	"Where there appears to be good reason."
	to the beginning of proposed new section 447(1) in clause 21. I assume that amendment No. 20 is an alternative, as it would add the words
	"If he thinks there is a good reason to do so"
	at the beginning of the same line. Neither in amendments Nos. 1 and 20 nor in a similar amendment in Committee has the hon. Member for Sutton Coldfield (Mr. Mitchell) attempted to define the phrase. However, he and other Conservative Members seem to believe that the amendments would somehow send a clear message about the test being set for the use of the powers, particularly for those who may be ignorant of the law. I am afraid that I disagree.
	The amendments would offer a dangerous comfort blanket, because without definition, the phrase "good reason" may mean different things to different people. What appears good reason to a complainant may not be regarded as good reason by a company and it would leave open for the future a debate about whether the Secretary of State needs better grounds than administrative law would allow or, alternatively, whether she could act in a wider range of circumstances than such law would allow. That is what the drafters of legislation mean when they say that unnecessary words have a habit of turning septic.

Andrew Mitchell: rose—

Jacqui Smith: I shall give way so that the hon. Gentleman can, for the first time in the process, give us a definition of what the phrase "good reason" means.

Andrew Mitchell: I do not need to give the Minister a definition. What she needs to explain is why it was thought necessary to add this definition four years ago in the Financial Services and Markets Act 2000 and why her predecessors also took precisely the same view in the Companies Acts 1985 and 1986. Why are the Government unwilling to concede the same definitions in this particular case when they accepted them in the year 2000?

Jacqui Smith: That argument suggests that the hon. Gentleman adopts a sort of cut-it-out, stick-it-down and paste-it-in approach to legislation. Simply because one set of words is used in one piece of legislation, it does not necessarily mean that the same words are right in another context. I have spent some time outlining the dangers of otiose words in legislation—

John Gummer: rose—

Andrew Mitchell: rose—

Jacqui Smith: I shall give way in moment. I am going on to explain the legislative basis for the Secretary of State to take action.

John Gummer: Would the Minister like to reflect on previous debates on precisely the same issues? The reason that the Government offered at the time for including those particular words was precisely the same reason why Conservative Members are asking the Minister to include them here today—so that people will realise that these things do not happen without good reason. If she refuses to accept that, she is effectively saying—there is no doubt about it—that these matters can take place without good reason. She cannot have it both ways: if she will not allow "with good reason", it means that she accepts that these things can take place without good reason.

Jacqui Smith: It is a trivially attractive argument to say that we should reverse what is in an amendment to find out what legislation really means. Really, though, the right hon. Gentleman, with all his experience in government, should have more sophisticated arguments than that.

Andrew Mitchell: For the first time during the course of the Bill, I must chastise the Minister for failing to give a proper answer. It is no good her talking about doing a scissors-and-paste-job on the legislation. These are words and phrases that her predecessors expressly used in 1985 and 1986. I have given chapter and verse on why her Government put them in and where they put them in—particularly in the Financial Services and Markets Act 2000. Why does she think that they were right then, but wrong now?

Jacqui Smith: Because this is a different Bill and we are debating the impact of what happens when words are put into legislation without any clear reason. As I am about to explain, there is a clear legislative basis for action. Fundamentally, the decision whether to act is one for the Secretary of State and the basis on which she may so decide is circumscribed by the principles of administrative law. As I said in Committee, the Secretary of State will have to have a sound reason for using the powers. She cannot act lawfully without one. Her decision to act must be within the legal scope of the provision and it must be in pursuit of the policy and objectives of the Bill. It must also be reasonable. Neither amendment No. 1 nor amendment No. 20 would change that. The risk is that they would do the opposite of what is intended—that is, that they could muddy the waters sufficiently to mean that a person could misapprehend the circumstances under which an investigation might be carried out. Ultimately, new section 447 could be interpreted by the courts in a way that was not intended, so I do not accept that there is a need to reintroduce the so-called good reason test.
	The remaining amendments in this group concern clause 23, which provides powers for inspectors and investigators to require access to—and to remain on—premises that they believe are being used wholly or partly for the purposes of the business of the company that they are investigating. That is an important addition to the range of powers available to inspectors and investigators. The ability to gain access to company premises, and to spend time there, has great practical benefits, as information is the lifeblood of a successful investigation. Without it, inspectors and investigators cannot operate effectively.
	The simple observation of a premises can be enormously valuable in allowing inspectors and investigators to build an understanding of the company's business. They can find out who controls the company's operation on a daily basis and form a view about its viability. Companies with something to hide have been able to impede investigation by refusing access to their premises, leaving investigators or inspectors unable to identify the people to whom they should talk, or to approach them.
	For example, investigators or inspectors might want to establish what telephone script was being used with potential customers in a call centre, but that would be less easy to do if they were unable to gain access to the premises. Lack of access also means that inspectors or investigators cannot ascertain the relationship between individuals. For example, they could not establish whether a disqualified director was acting as a consultant to the company or whether he had a management role.
	Without access, it is impossible to determine whether the records presented to inspectors or investigators provide a complete picture. Investigators have found themselves being kept off premises and being drip-fed papers over a period of time. In such circumstances, their investigation is delayed and it is possible for companies to use the delay to destroy information or amend records.
	I reiterate that the powers in the Bill must not be confused with the existing search and seizure powers available to investigators and inspectors. The two sets of powers are entirely distinct. The search and seizure powers in section 448 of the Companies Act 1985 depend on a warrant: a justice of the peace must issue that warrant, in specified circumstances, to allow an inspector or investigator to enter premises, if necessary by force, for the purposes of a search and the seizure of documents. However, the powers in the Bill are not about forcing entry, searching or the seizure of documents.
	I turn now to amendments Nos. 2,3,7 and 8, which concern the basis on which a judgment is made by an inspector or investigator using the new power to enter a premises and remain there. All four would amend or replace references to what an inspector or investigator thinks: under the proposals, either the word "thinks" is replaced with the phrase "reasonably believes", or it is amended to read "thinks on reasonable grounds". New section 453A contains two references to an inspector or investigator being able to act on the basis of what he or she thinks.
	An inspector or investigator may use the power to enter premises and remain there if he or she thinks that that would materially assist the investigation. I emphasise that that is not the only criterion applied to use of the power, as its use by the inspector or investigator must also be authorised by the Secretary of State.
	Secondly, inspectors or investigators will be able to remain on the relevant premises for as long as they think is necessary to assist the investigation. I stand by the clarification that I gave in Standing Committee: there is no difference in legal effect between the word "thinks" and phrases such as "reasonably believes". Inspectors and investigators must act within the law, and that means that they must have reasonable grounds to believe that gaining access to the premises in question will help the investigation. They will be able to remain on premises only for as long as they have reasonable grounds for believing that that is necessary. The context and safeguards for inspectors' actions are already set out in the legislation. The length of their stay is likely to be a matter of hours rather than days, but I will return to that point when I reach amendments Nos. 9 and 10.
	Amendment No. 14 seeks to include in the written statement a description of the inspector or investigator's grounds for belief that the use of the power of entry will materially assist them. I understand that the hon. Member for Sutton Coldfield wants to guard against any possible misuse of powers that he regards as extensive, but I do not think that his amendments are necessary or desirable. There is already a series of specific safeguards that will apply to the use of the powers. I touched on those in Committee, but they bear repeating. The power to require entry to premises can be used only if the investigator or inspector has been authorised to use it by the Secretary of State in the investigation in question. The power can be exercised only at reasonable times. The investigator or inspector must produce evidence of their identity and of their appointment or authorisation. They must provide a written statement of their powers and of the rights and obligations of the company or other occupier and of persons present on the premises and they must produce a written record of the visit.
	We are consulting on the content of the written statement that will be prescribed by regulations. I understand that we have sent out the consultation document and that we have sent a copy to the hon. Gentleman. As he has not had the chance to look at it yet, I shall ensure that he gets another copy. It is intended that the statement will be more than just a bald repetition of the statute. It will set out in plain English what the company, for example, can expect. However, I do not think that it would be right to set out the reason why the inspector or investigator thinks that gaining access to the premises would assist their investigation. It might be difficult to do so without including some detail of the complaint that led the investigator there. Were the investigator to provide information about the substance of the complaint, it might make obvious the source of that complaint. That could, for example, be an employee or a supplier or customer. It could make life difficult for them and it might dissuade other complainants from coming forward in the first place. Clearly, there will be an opportunity to have some discussion with the inspector or investigator, when they arrive, about the reason for their visit, but it would be disproportionate for the inspector or investigator to be required to provide what amount to written reasons. We have gone a long way with safeguards already and, in my view, nothing more is necessary or desirable.
	Before I turn to the hon. Gentleman's amendments on residential premises, let me deal with amendment No. 23, which seeks to modify the definition of "relevant premises". He appears to have the situation in mind where, for example, the company under investigation occupies one or more parts of a building and other people occupy other parts of the building. He wants the power to enter and remain on premises to be exercisable only in relation to the parts used for the company's business. He thinks that the definition of "relevant premises" needs to be amended to achieve that. It does not. That is the effect of the clause as it stands.
	Although the expression "relevant premises" is defined in new section 453A, the word "premises" is not. So it must take its natural meaning, in context. "The Shorter Oxford English Dictionary" defines it as including
	"(a part of) a building housing a business etc".
	Therefore, where a company trades from a building such as an office block, the "relevant premises" under new sections 453A and 453B are those parts of the building that are used for the purposes of the company's business. If the business is carried on in only one part of a building, it is only that part of the building that is the "relevant premises" and not any other part.
	The reference in new section 453A(3) to premises that are "wholly or partly" used for the purpose of company business is there to deal with the situation where, for example, the company shares an individual office with another company. So the inspector or investigator can require entry to and remain in that individual office even though it is also used for the purpose of another company's business.
	Where a private home is concerned, the words are intended to make it clear that, for example, the inspector or investigator can require entry to a director's home study, despite the fact that the director also uses that study for other unconnected business or domestic affairs. The words "wholly or partly" are not included so as to entitle an inspector or investigator to enter, and remain in, parts of a building not used for the company's business, although of course the right of entry to company premises inevitably entitles them to pass through such other parts to reach the company premises.
	I suggest that what I have described as the effect of the new provisions is in fact their most obvious and natural meaning. They could not properly be construed as enabling inspectors or investigators to enter and remain in one part of a building simply because another part of the building was used for the business of the company they are investigating.
	Amendments Nos. 4, 12, 13, 15 and 16, would, together, introduce a warrant procedure to gain access to residential premises. I am aware that the hon. Member for Sutton Coldfield has genuine concerns about the fact that the definition of relevant premises extends to residential premises also used for a company's business, and that inspectors or investigators will be able to get to relevant premises by moving through premises used entirely for residential purposes. He wants to establish a regime with regard to those premises whereby an inspector or investigator can use the new powers only if a justice of the peace has issued a warrant, and with the assistance of the police. As he sees it, he would be introducing an additional safeguard, but as I have already emphasised, clause 23 is not a power of search and seizure and no force can be used.
	As I explained earlier, the inspector or investigator will be trying to establish the facts. I reiterate the point I made in Committee: to introduce any kind of judicial warrant procedure, whether or not involving the police as the hon. Gentleman seeks to do, would be entirely unsuitable and, I contend, unnecessary in light of the safeguards that will be in place. Indeed, with his new responsibilities for policing, I am not sure that he would consider it a good use of police time if, in all circumstances, there was a warrant and, presumably, a police officer attending alongside the DTI investigator.
	It is inevitable that there will be circumstances where a company under investigation is trading from residential premises and where access will materially assist the investigation. I have already outlined the vetting process that leads to an investigation into a company. Furthermore, a trip to residential premises will not be the first step in the investigation process, but it is right that it should be an option, should that prove helpful to the inquiry. We must not allow people running dodgy companies to think that they can increase their chances of hiding from inspectors or investigators by trading from their residential address. I have spelt out the safeguards in the provisions and they offer a fair balance.
	I turn to the hon. Gentleman's amendments on time limits for the exercise of the new powers to enter and remain on premises. Amendments Nos. 5 and 6 would restrict investigators' powers to enter and remain on premises to "normal office hours", while amendment No. 11 would limit visits to the hours between 9 am and 5.30 pm, Monday to Friday, unless the inspector or investigator "reasonably believes" that his investigation would be "seriously impaired". The purpose of amendments Nos. 9 and 10 appears to be to limit the permitted duration of a visit to a maximum of one month.
	At this point, I want to say something about co-operation. I have already referred to information as the lifeblood of an investigation. Obviously, co-operation from those being investigated is always the most desirable circumstance, as it makes the investigation easier, speedier and more effective. It is crucial, of course, that inspectors and investigators have powers to conduct an effective investigation even when there is a lack of co-operation, but the norm for the inspector or investigator will always be to maintain the most productive relationship.
	As I said earlier, the inspectors and investigators will be seeking to obtain information. They will try to achieve that by making contact with the company under investigation during the normal working hours of its business. However, normal working hours will vary from one business to another.
	Companies that use call centres to interest members of the public in a wine investment scheme or a holiday club are likely to trade during the evening and at weekends. The days when every business in the high street opened only between 9 am and 5.30 pm, Monday to Friday, are a distant memory. Nowadays, companies target their resources to suit their customers' needs and expectations, and, in just the same way, Department of Trade and Industry inspectors and investigators must be flexible in their approach to investigations. However, their powers cannot, of course, be open-ended, so we have stated that inspectors and investigators can enter and remain on premises only at reasonable times. As I have already said, any other limitation is not practical in the modern business environment.
	We have included a test of reasonableness in proposed new section 453A(2) of the Companies Act. The inspector or investigator must take into account all the circumstances of a case. He or she must take into account the company's actual trading hours, who is on the premises and what they are doing.
	Amendments Nos. 9 and 10 refer to an inspector or investigator being able to remain on premises only for a period not exceeding one month. That would be inconsistent with the protection already afforded by proposed new section 453A. The effect of the first line in new section 453A(2) is that an inspector or investigator must leave the premises as soon as it becomes unreasonable for the company or other occupier to allow him to remain there and he is asked to leave. It is unlikely that it would be reasonable for an inspector or investigator to remain indefinitely for days at a time. However, the hon. Gentleman's proposal might have the effect of implying that it would be reasonable for the inspector or investigator to do so, up to a limit of one month.
	The reasonable times test is likely to constrain the inspector or investigator to remaining on premises for a matter of hours, rather than days. On every occasion that the inspector or investigator wishes to gain access to premises, he or she must be satisfied that doing so will materially assist the investigation. Together with the reasonableness test, that will rule out the possibility of visits being repeated or drawn out for no good reason. The combination of the two tests—the reasonable-times test and the test about materially assisting the investigation—provides a strong limitation on the use of the powers. In my view, nothing further is required or desirable, as it could weaken the safeguards in the Bill.
	Amendments Nos. 21, 22 and 24 appear to be intended to add a layer to the process, whereby an inspector or investigator can use the power to enter and remain on premises. Once the inspector or investigator had been given authority by the Secretary of State to use the power and could show that its use would materially assist the investigation, such authority would last for only 30 days. It would be possible to renew it, but only on the written request of the inspector or investigator to the Secretary of State.
	In addition, the hon. Gentleman proposes that the ability to remain on premises be confined to a period of seven consecutive working days. We see no point to that. It seems to be a cumbersome, artificial and unnecessary system of statutory checks on the use of the power to enter and remain on premises. It would add nothing of value to the existing process. The deadlines of 30 days in respect of the authority or seven days to remain on premises are entirely arbitrary—something that is impossible to avoid with that approach.
	Moreover, the hon. Gentleman, in dealing with one way in which he perceives that the powers could be used oppressively, has not dealt with other situations about which I am sure he would be equally concerned. What would happen, for example, if an inspector or investigator were to visit the premises for eight hours every other day for 30 days? Why is he not tackling that?
	The truth is that all the necessary checks and safeguards are already in the new powers. For example, our approach provides a test that will be applied so that each case is judged on its merits. On every occasion when inspectors or investigators seek to enter premises using the power, they must think that it will materially assist the investigation. They must have reasonable grounds to think that the investigation will be helped by gaining access to the relevant premises. Once on the premises, they could stay for only as long as they thought it necessary to achieve their purpose. They may remain only for a reasonable time, which is likely to be a matter of hours rather than days. The necessary safeguards are in place to deal with such situations, so I remain of the view that our approach in clause 23 is appropriate. I am not attracted by the regime proposed by amendments Nos. 21, 22 and 24 because it would introduce an arbitrary, artificial and cumbersome layer of bureaucracy to the process without adding any value to the system.
	I have responded at length to the worries that were reflected in amendments and raised by Conservative Members. However, the right hon. Member for Suffolk, Coastal (Mr. Gummer) asked what I will say to my constituents. I will be in a strong position if my constituents tell me that they have lost their savings or investments in a company and that Department for Trade and Industry investigators cannot investigate the matter properly because they cannot enter premises at an appropriate time, remain on the premises or get the information that they need to ensure that justice is done. I will be able to say that I have ensured that their interests will be safeguarded. I will be able to reassure constituents who are worried about whether to make a complaint about the company for which they work because they think that something dodgy is going on that I resisted calls from Conservative Members for investigators to have to submit information that could give away the fact that they had done the right thing by reporting such dodgy dealings.
	I am confident that I have struck the right balance between safeguards and improvements to the company investigations regime and that I will be able to defend that to the House and my constituents. The system will improve the current situation by safeguarding not only people's savings, jobs and investments, but the corporate framework that is important to this country's prosperity.
	Let me turn to amendment No. 16 and especially to Government amendments Nos. 17 and 18. The high point of the time spent by the hon. Member for Sutton Coldfield in Committee was when he rightly identified a lacuna in the Government's approach, and the Government amendments are my response to that. We thus cannot claim credit for the inspiration behind the amendments—I am grateful for the assiduous attention that he gave the matter.
	Inspectors or investigators who use the new power to enter and remain on premises will be able to take other individuals with them as appropriate, such as technical experts or interpreters. While on the premises, inspectors or investigators will be able to use their other powers to require information. They will also be able to take in their surroundings by observing and hearing people and activities and by observing the layout of the premises for themselves. As the hon. Gentleman rightly pointed out in Committee, it cannot be right for information acquired by an accompanying person to be in any way less protected than that gained by an inspector or investigator. We were guilty of overlooking that crucial point of principle, and Government amendments Nos. 17 and 18 will put that right.
	I hope that the House will support Government amendments Nos. 17 and 18 and that the hon. Member for Sutton Coldfield will not press amendments Nos. 1 to 16 and 20 to 24 to a Division.

Andrew Mitchell: In spite of the Minister's charming concluding remarks, for which I am most grateful, her arguments are wholly inadequate and we will seek to divide the House on amendments Nos. 1 and 24, which I sense would meet some of the concerns expressed.
	Nowhere was the Minister so dangerously exposed as in her exchanges with my right hon. Friend the Member for Suffolk, Coastal (Mr. Gummer) and me on the issue of good reason. Hansard will show that the Government lamentably failed to demonstrate why they refuse to accept the amendments.
	Colleagues raised the danger of investigators going on fishing expeditions. That goes to the heart of the sort of thing from which the House should be protecting our constituents. The failure to accept the amendments encourages officials to go on fishing expeditions and there is nothing to stop them doing so. It was noticeable that not one Labour Back Bencher spoke up for the Government.
	A number of my hon. Friends expressed the sensible view that this is a reasonable Minister with a reasonable team of officials, but times can change. We cannot legislate so easily to give away such powers just because the Minister and her colleagues showed a degree of reasonableness until the Bill was discussed in Committee and on Report. The Minister does not serve the House well by dismissing so lightly our words and those of a former Labour Minister, the hon. Member for Stoke-on-Trent, Central (Mr. Fisher), who warned her against the powers.
	The Minister summed up her case by saying that we must not allow dodgy companies to escape. Of course she is right, but we must not expose entirely innocent—perhaps wrongly suspected—people to undue pressure and unfair practices. It is that balance between protecting the innocent and catching and punishing the guilty that our amendments flag up and would change. It is a great pity that she did not heed the wise words of two senior former Ministers who served in her Department and one distinguished Cabinet Minister. They warned her in a gentle and encouraging way to think again about the powers.
	The Minister addressed many of our amendments; indeed, she addressed some that Mr. Speaker did not select. We are grateful to her for covering the points that we raised. However, she has seriously underestimated our legitimate concerns. At one point she said that we should get the matter in perspective because we were talking about 5,000 cases a year, only 5 per cent. of which are investigated. That is all right, then: only 0.04 per cent. of companies are investigated. But what if it is her constituent or one of mine who is investigated unfairly and as a result of her failure to accept the amendments the law is not as constrained as it should be?
	The Minister said that the average investigation lasts only three months, but 12 weeks is an awful long time if the inspector is going to sit in your home. She also said—this was the low point of the debate—that we are not talking about search and seizure operations, for which a warrant is required. I should think we are not. An Englishman's home used to be his castle. It is outrageous that she should dismiss our reasonable arguments. Our constituents' homes deserve better protection. An inspector may come to someone's home and stay there. He may have no good reason to do that. He certainly will not have to declare it. He can stay as long as he likes, including during the night. That has all the characteristics of a Chekhov play. We will vote to protect the ancient liberties that our constituents have every right to expect us to preserve.
	When there is a great row in the press about excessive bureaucratic powers that have been ill exercised and the Bill is cited as the way in which those powers were given, Conservative Members will be able to say that through the amendments, painfully argued in Committee and the Chamber, we have discharged our duties and opposed the powers that the Minister is too lightly granting.

Question put, That the amendment be made:—
	The House divided: Ayes 158, Noes 255.

Question accordingly negatived.

Clause 23
	 — 
	Power to enter and remain on premises

Amendment proposed: No. 24, in page 29, line 32, at end insert—
	'(9) The Secretary of State may on the written request of the inspector or investigator—
	(a) if satisfied that it is necessary for the purpose mentioned in subsection 1(b) extend for a period which he may specify beyond the initial 30 days the period of authorisation under subsection 1(a); or
	(b) extend the number of consecutive days during which the inspector or investigator may remain on the relevant premises.
	(10) There shall be no limit on the number of extensions which may be requested of or granted by the Secretary of State under subsection (9).'.—[Mr. Andrew Mitchell.]
	Question put, That the amendment be made:—
	The House divided: Ayes 159, Noes 264.

Question accordingly negatived.

Clause 26
	 — 
	Community interest companies

Andrew Mitchell: I beg to move amendment No. 19, in page 32, line 7, leave out subsections (2) and (3) and insert—
	'(2) The Secretary of State shall by regulations make provision about—
	(a) the formation of new community interest companies, and
	(b) the types of existing company that may become a community interest company.'.
	This is primarily a technical amendment and I have tabled it to offer hon. Members the opportunity to discuss community interest companies. In Committee, time was short and we did not have a chance to deal with the subject to the extent that we would have wished. I made a number of remarks about community interest companies on Second Reading, and there is no dispute that community and social enterprises are not currently well served by legal forms, or that it is appropriate for the promoters of these enterprises to have available a type of company that is, in the jargon so beloved of the Secretary of State, "fit for purpose".
	The idea of creating a non-charitable company with an asset lock to serve the public interest, which is at the heart of this proposal, is not a new one. For example, in June 2001, the Public Management Foundation put forward the case for public interest companies, looking at the advantages of what were then referred to as PIC forms being used as legal forms to fill the perceived gap between Government and the voluntary sector. The foundation's proposals were rather more ambitious than those that we are considering today.
	By the time the strategy unit's report was published in September 2002, the public interest company had been whittled down to become a community interest company, or CIC. The original proposal for a legal form capable of delivering both public and social services was then being presented as a form confined to objectives in the public and community interest. By March 2003, in the DTI consultation entitled "Proposals for a Community Interest Company", further whittling had occurred. The CIC is described as meeting
	"the needs of local communities, complementing core Government services in areas such as childcare provision, social housing, leisure and community transport".
	The proposals make it clear that the Government do not intend the CICs to deliver essential public services. Why the public interest company moved to the community interest company, and why the need was felt to allow only companies serving a community interest to have the privilege of an asset lock—if it is a privilege—therefore remains something of a mystery. But that is the perhaps less ambitious proposal in the Bill.
	The Government, having created this narrower remit for the CIC, seem to have some difficulty in deciding what that remit is. I will return to that point in a moment. The concerns that I expressed on Second Reading are best examined by asking the following question: does the CIC achieve what it is supposed to achieve? The CIC, according to the March 2003 proposals, is supposed to achieve two simple aims. The first is to provide a distinctive brand for social enterprise and the second is to create a form of company with an asset lock, which does not rely on charity law or other statutory provisions, such as those for registered social landlords.
	Those aims are illustrated in the consultation that led to this Bill, with examples of why current legal forms are regarded as inhibiting to social entrepreneurs:
	"The legal process of creating a not-for-profit company can currently be lengthy and expensive, so the transaction costs of setting up are high.
	Social and philanthropic investors can be deterred by the lack of an obvious profit and asset lock, and so prefer to support other organisations such as charities . . . Conversely, commercial investors can be puzzled by the complexity and diversity of not-for-profit structures, and so can see social enterprises as riskier than they really are, which"—
	as the Minister will appreciate—
	"raises the cost of funds."
	All those are perfectly reasonable observations about the current structural issues facing social enterprises and other community-based initiatives. What is difficult to see is whether the CIC and the regulatory structure proposed by the Bill will deliver those aspirations.
	On whether creating a company with an asset lock is a difficult and expensive process, the idea was that the CIC would be
	"clearly defined, easily recognisable and understandable by users, staff and the wider community they serve".
	The CIC could have been a completely new corporate form, such as the charitable incorporated organisation, but instead it was clearly decided somewhere along the way that it was more appropriate to make the CIC a share or guarantee company with special features. A share or guarantee company is a familiar form to most people. However, there is no real attempt in the Bill to make those special features easily understandable. For example, there is no modified version of table A for the share CIC or table C for the guarantee CIC. Instead, the social entrepreneur or his advisers must take a normal company and then weave compulsory provisions, set out in schedules, into the regulations that will ultimately accompany the Act.
	Perhaps the intention is that the regulator will produce standard forms, or perhaps it will be left to bodies such as the Social Enterprise Coalition. But what has appeared so far is hardly consistent with a Government desire to make this new form clear and understandable. We also remain in the dark about the real cost of setting up a CIC. A schedule for fees has recently appeared in the draft regulations published on the DTI's website. Unfortunately, the schedule, unhelpfully, remains completely blank.
	Those barriers to entry may seem minor, but it must be remembered that the Government are providing no fiscal incentive to become a CIC—a point that we were able to explore briefly in Committee, thanks to a note received from the Royal National Institute of the Blind. Every time that this point comes up, we are told that the incentive is in the form of funds collected by intermediary community development financial institutions. But a CDFI does not fund CICs specifically; it funds community action generally.
	At present, therefore, it is far from obvious how quick and simple the formation of a CIC or conversion into a CIC will be. Perhaps the Government intend to provide finance to the social enterprise sector, to enable it to work up the proposals into a genuinely user-friendly form. They do not look user-friendly at the moment. I have suggested that a fund could be created to enable organisations to meet the cost of converting to the new form owing to those concerns.
	The next problem that the CIC was supposed to address was that social and philanthropic investors could be deterred by an obvious profit and asset lock. I will not dwell on the nature of the asset lock, other than to remark in passing that the regulator is being left with a very difficult task by the draft regulations. The regulator must set the dividend cap and the interest cap on the asset lock. Much has been made before now of the enormous diversity of the social enterprise sector, and the vast range of undertakings and initiatives that it covers. What must also be recognised is the vast range of circumstances for which the cap will have to cater. On the one hand, the regulator must reassure philanthropic investors that the cap is not too generous to commercial investors; on the other, commercial investors will want to be reassured that they can get a proper return from their investment. It will take a regulator with the judgment of Solomon to set those rates. At least the regulations now provide that he or she can do so in a manner chosen by him or her, not by the Secretary of State.
	One of my main concerns relates to the asset lock. Why are we bothering at all? There already exists a corporate form—the industrial and provident society, which I spoke about on Second Reading—one type of which can be formed for the benefit of the community. The extra statutory guidance produced by the Chief Registrar of Friendly Societies—now run by the Financial Services Authority—is refreshingly straightforward when it comes to describing what is meant by "the benefit of the community". He says
	"A society must demonstrate, amongst other things, that it will benefit persons other than its own members and that its own business will be in the interests of the community. Other factors relevant to the decision on qualification are whether it is non-profit making, whether its rules prohibit distribution of assets amongst members and whether the same considerations relating to member control, interest rates etc as are applied to bona fide co-operatives are satisfied".
	Since 2003, the Government have been capable of making regulations enabling an industrial and provident society to adopt an asset lock. We now have, at last, a consultation document from the Treasury on the subject. Lo and behold, one of the options canvassed in the consultation is that the asset lock should be the same as that proposed for the CIC.
	It is perhaps churlish to take issue with such generosity of spirit—two forms instead of none—but one of the founding principles of this legislation was supposed to be that it would create a distinctive brand for social enterprise. Of course that aspiration was lost as soon as it was decided that a community interest company could not be a charity—although it was accepted that many charities did things that were akin to social enterprise.
	I suspect that the Minister, in her usual charming way, will give me an answer along the following lines. First, she will say that the industrial and provident society is a complex and moribund form, and the company is well understood. Secondly, she will say that an industrial and provident society is a democratic organisation, and a company need not be. Both are perfectly legitimate points as the industrial and provident society stands, but the clear intent—expressed both in the strategy unit's report and in the legislative action taken since that report—is to drag the industrial and provident society as a form into the 21st century, and indeed to make it more like a company.
	It is also worth pointing out that social entrepreneurs, particularly small community groups, might prefer the form of constitution that an industrial and provident society takes, set out in a simple set of rules, to the memorandum and articles of a company. One of the classic examples of an industrial and provident society is, of course, an allotment association.
	The second reason is also unconvincing. If an industrial and provident society can have an optional asset lock, could it not also have an optional undemocratic structure? Why do we need two forms of vehicle performing what, at the end of the day, will be essentially the same function?
	The third reason why the 2003 proposal considered that a CIC might be a good idea was the concern that commercial investors might be blinded by the complexity and diversity of current not-for-profit structures. You will have gathered, Mr. Deputy Speaker, from what I have said so far that I cannot see the increasing plethora of forms that must be filled in helping in this respect. The proposal also perhaps overstates the case for arguing that commercial investors are easily confused simply because one social enterprise might describe itself as a company, while another might describe itself as a charity or an industrial and provident society.
	At the risk of over-generalising, what puts off commercial investors is uncertainty: uncertainty about what the enterprise in which they are investing can or cannot do, how its freedom of action might be inhibited by a regulator, and what might happen to its assets if it becomes insolvent. However, if we are looking for certainty in part 2 of the Bill, it is the last thing that we will find.
	Let us consider one of the fundamental strands of this new form: the community interest test. According to clause 35(2), a CIC will pass the community interest test
	"if a reasonable person might consider that its activities are being carried on for the benefit of the community."
	I appreciate that the test is intended to be flexible and an easy hurdle to jump, but doing so is hardly certain. Unlike the test for charities, it is an activities test; in other words, one looks not at the objects of the organisation to determine its status, but at what it is doing or intending to do. Such activities must be "beneficial" to a community, but as those who listened to the debate about public benefit arising from scrutiny of the draft Charities Bill will know—I had the honour to sit on the Committee that considered that Bill—"benefit" is a far from easy subject to define. In the charities context, it has taken the courts 400 years to fine-tune a concept similar to the one that the CIC regulator will be expected to produce overnight.
	On looking at the draft regulations, the level of confusion does not really get much better. On the one hand, it is accepted that the employees of a single employer can be a community for the purposes of the test; on the other, that cannot be so if, according to regulation 4(e), a reasonable person would regard the activities as being conducted solely for the purposes of private gain. Again, it is impossible at this point to know what that means for an organisation that ordinarily can benefit private individuals, provided that they are part of the community whom the CIC serves.
	There is yet another complication to the test, and it relates to the nature of the activities that a CIC can undertake. As was made clear by Lord Sainsbury when the Bill was in Committee in another place, a CIC does not need to have community interest objectives in its constitution. It could be a general trading company that has simply confirmed that its activities will be for the community interest, which would enable it to undertake trading activities designed to raise funds for the benefit of the community. The example was given of an allotment society running a bar. Doing so is fine, provided that a reasonable person would gather that the real intention was to raise money for the benefit of the allotment owners; the bar could not be an end in itself.
	Where does this leave the community interest test? It would seem to place it somewhere in the realm of the social entrepreneur's intentions: provided that they intend to do good by whatever it is they are doing, they pass the community interest test. Frankly, we will not know the answer until the regulator has been regulating for some years. We need to wait and see how much trading the regulator will let a CIC get away with before it concludes that it is trading for the sake of trading, rather than for the sake of the community it is supposed to serve.
	Of course, this might not be such an issue for the commercial investor if they can rely on the regulator one way or another to recover their investment. However, the test makes the CIC brand indistinct to the point where one wonders whether it is really worth having a community interest test at all. Indeed, it has been suggested that the voluntary adoption of an asset lock is more than sufficient evidence of a desire to benefit others. The Government might well discover that that is a less bureaucratic and regulatory way of achieving what we all want in this respect. I should be most grateful if the Minister commented on that specific point when she replies, because it seems to present a sensible way forward.
	We must assume that, despite the complexities and uncertainties surrounding the new form, it will remain in the Bill. The amendments that I tabled in Committee were intended to focus on ensuring that the actions of the regulator were proportionate, explicable and rational. The CIC—and, more importantly, its ability to attract finance—will depend on the actions of the regulator being predictable and proportionate.
	The discretions reserved to the regulator seem to appear at any point when the issues get difficult. The regulator thus has to decide the dividend and interest cap, whether the community interest test is passed and, effectively, what the test is. He has to decide whether and how to investigate a CIC and whether and how to intervene in the affairs of a CIC, having determined that it is in the interest of CICs at large that he does so under the Bill. The regulator has to determine whether or not a CIC can change its objects, what guidance should be issued on what subjects and who gets the surplus assets when a CIC is wound up under the provisions of the Insolvency Act 1986. I am afraid that that list is not exhaustive. The Bill should flesh out the discretions and add to our certainty about its effects on CICs by increasing transparency and enhancing the accountability of the decisions taken.
	I end on one last helpful note for the Minister. One must hope that the regulator takes one leaf worth taking out of the Charity Commission's book by publishing significant decisions and the reasons behind them. The earlier the information about how the regulator is taking the key decisions is made available, the more likely we are to achieve what we all want from these measures—a real boost for community enterprise and voluntary endeavours throughout our constituencies.

Jacqui Smith: As the hon. Member for Sutton Coldfield (Mr. Mitchell) said, part 2 of the Bill contains a range of provisions to bring the concept of community interest companies into being. We have had an interesting debate about both the principles and the detail at previous stages of the Bill, both here and in the other place. As the hon. Gentleman also made clear, the amendments provide another opportunity to identify some of the key issues around the development of CICs. I greatly welcome the support across the House for the concept of community interest companies and I would like to take the opportunity, in speaking to the amendment, to say a little more about why the Government are promoting the concept.
	We have taken the CIC forward in the Bill not just because it is a useful technical addition to the body of company law, but because we expect it to make a real difference to the way that communities can work creatively and enterprisingly for the common good. That is why the CIC was proposed in the strategy unit report on the not-for-profit sector, and why it was warmly welcome by a wide range of stakeholders when we ran a detailed technical consultation last year. As my right hon. Friends the Secretary of State for Trade and Industry, the Chancellor of the Exchequer and the Home Secretary wrote together when we published that consultation:
	"The CIC will create real opportunities for people in areas where they are needed most."
	I can also say that, throughout the process of developing the CIC, we have continued to work closely with all the interested parties in the social enterprise sector to try to ensure that the end result achieves what we all want. I should like to take this opportunity to record my thanks to all those who have participated in that effort and been willing to give us the benefit of their experience and their expertise, particularly in the social enterprise sector. As I said, I want to put my thanks to them on the record. I assure them and others that we will continue to work with them to finalise the secondary legislation on CICs, and ultimately to support the new regulator in helping CICs put theory into practice. We want CICs to be a success.
	The result will be a welcome and useful addition to the range of legal forms available to the not-for-profit sector. There has been much debate here and in the other House about the range of initiatives that the Government are introducing to improve and modernise the legal environment for social enterprise. That debate will continue as other legislation comes forward, for instance in respect of charities. Although I do not want to go over that ground again, I should like to remind the House of why the Government think that CICs will be so useful.
	For the first time, social entrepreneurs in Britain will be provided with a tailor-made form of company that is distinctive and easy to use. The CIC will offer a clear and effective mechanism to ensure that assets and profits are used for the good of a community rather than for private gain. In turn, that will make it easier for others, including service users, financiers and supporters, to understand and support the social enterprises that adopt this new form.
	One of the key arguments in this matter was, I think, rather underplayed by the hon. Member for Sutton Coldfield. The advantage for those social entrepreneurs who have had to struggle to devise their own version of an asset lock is that this legal form will provide the certainty of an asset lock. That means that they will be able to enjoy certainty when it comes to gaining investment and doing business, and that will be a major step forward.
	In addition, CICs will take their place alongside the industrial and provident societies, which are themselves being modified under the ongoing work by the Treasury to update the legislation on mutual societies. They will also complement the various legal options available to charities, which will themselves expanded by the forthcoming Charities Bill. The end result will be a modern range of legal options that reflect and support the breadth and diversity of social enterprise and voluntary activity.
	I shall deal briefly with the relationship between CICs and the industrial and provident societies. In Standing Committee, I said that the introduction of the CIC is one of a group of measures proposed in the 2002 report from the strategy unit. That report also recommended a number of measures to modernise the form of the IPS. I disagreed with the hon. Member for Sutton Coldfield when he described the IPS form as moribund, although I do not know whether he was presenting his own view or reporting the opinion of others. Not only did I twitch at that suggestion, but I can assure the House that my Parliamentary Private Secretary, my hon. Friend the Member for Edmonton (Mr. Love), who has a detailed knowledge of the co-operative movement, twitched too.
	The IPS form is not moribund: it is very vibrant in many of our communities. Reform is needed for other reasons. The strategy unit proposed the creation of an optional asset lock for the benefit of community IPSs, and the Government are taking its recommendations forward. Considerable assistance is being rendered by my hon. Friend the Member for South Derbyshire (Mr. Todd), who introduced a private Member's Bill in this area. As has been noted, the Treasury published a consultation paper in July on the technical issues surrounding the introduction of the optional asset lock.
	The hon. Member for Sutton Coldfield has asked previously, and did so again today, why CICs are needed, given the proposed introduction of an asset lock for IPSs. It is the Government's strong view that CICs and IPSs have different but complementary purposes. The CIC will be ideal for those social enterprises that want the flexibility and familiarity of the company form. The IPS is more appropriate for those that want to be part of the long and proud tradition of mutual and community benefit societies, closely identified with co-operative principles and "one member, one vote" governance. The consultations that the Government have carried out on the strategy unit report and the CIC proposals have strongly supported that view. The whole legal framework for companies will be strengthened, not weakened, by the diversity represented by community interest companies, modernised IPSs and charitable incorporated organisations. I shall resist the hon. Gentleman's admonition that we should mush all those forms together into one. We would lose out if we got rid of that diversity.
	The hon. Gentleman also raised the question of what support the Government are providing for community interest companies. The first fundamental point to make is that the creation of the CIC overcomes a real barrier for social enterprise wishing to use the company form. At present, it can be expensive for a social enterprise to set up a company with an effective asset lock. We have estimated that the associated legal costs for social enterprises of setting up an asset lock at present average around £1,500. Even then, the nature and extent of such asset locks is not usually apparent to stakeholders and not always transparent to funders. Our proposals directly address those concerns, and offer non-charitable organisations that wish to use the company form an asset lock that is ready made, in standard form, and fit for their purposes. We have also designed the community interest test, and the application process, to be as straightforward as possible. The resulting structure should in itself provide significant savings for new social enterprises.
	The hon. Gentleman also raised the issue of the fee for registering to become a CIC. It will be set in regulations and it will be comparable to the company registration fee, which is currently £20. The DTI will provide support for the costs of the regulator and his office in the early years, when fee income will not be at a high enough level to allow self-sufficiency. We have also of course recognised the need to support the introduction of the new form in various ways.
	The hon. Gentleman highlighted the need for information and I agree that that will be important. Initially, the DTI will produce a series of fact sheets on CICs to provide information, and will work to raise awareness among relevant organisations, especially advisory services. Subsequently, the Bill provides that the regulator is able to provide guidance and assistance on any matter relating to community interest companies and, if necessary, the Secretary of State also has a power to require him or her to do so. Community interest companies, like other enterprises, will also have access to the full range of help and advice that the Government provide through the Business Link service. A range of funding is available for social enterprises, from sources including the devolved Administrations, regional development agencies and local government. Additionally, specific funds have been set up by the Government, such as the adventure capital fund and Futurebuilders, which are available to social enterprises.
	The Government have begun the process of preparing the ground for the introduction of community interest companies. We intend that it will be possible to register as a CIC from July 2005 onwards. There is a substantial amount of work to do before that date, not least appointing a regulator and making arrangements for his or her office, which will be based in Companies House in Wales. The appointment process for the regulator is under way, and we envisage that we will be able to announce the successful candidate before the end of the year.
	We are in the process of planning for the integration of the regulator's functions into the Companies House company registration and reporting systems. That will provide CICs with an effective one-stop shop when dealing with registration and reporting—one place to go to fulfil the requirements of the company form and the additional requirements of the CIC form.
	On the legislative side, on 11 October, we launched a consultation process on the draft regulations to be made under the Bill. The set of draft regulations on which we are holding consultations is substantially the same as the one that I provided for members of the Standing Committee last month. As I said, we intend to continue close dialogue with interested parties when finalising the regulations, pursuing the consultative approach that we have taken throughout the development of the proposals for CICs. We anticipate finalising the regulations and putting them before both Houses for debate early next year.
	I am glad that we have had this opportunity—albeit a relatively short one—to discuss community interest companies, and that we have debated them in some depth in Committee and in another place. The proposals have received considerable scrutiny, especially in the other place, and as I said, we are heartened by the support that the concept has received. The Government are committed to making a success of community interest companies and we are taking the practical steps that will ensure that.
	Part 2 provides the right legislative base on which to create that success and to provide opportunities for the social entrepreneurs in our communities, who make such a difference and who will be able to build on their potential by using this new legal form. On that basis, I am sure that the hon. Member for Sutton Coldfield will not want to press his amendment, but I welcome the opportunity that it has afforded us to discuss community interest companies and to put some points on the record, including the considerable progress that we are making towards the development of that form.

Andrew Mitchell: It would certainly appear that the generosity of spirit that characterised the tabling of the amendment, which was intended to give the House an opportunity to discuss the interesting new concept of community interest companies, has not attracted quite the support and interest from Members that might have been expected. The Minister and I have been left holding the baby, as it were—the CIC is an embryonic concept—in discussing the amendment this afternoon.
	The Minister has answered several of the points I raised, and I am grateful to her for that. There were a couple of other points that she did not answer; her eagle-eyed officials will have noted them, and I shall be grateful if she could write to me about them, so that those outside the House who watch these matters and are interested in them can also see the answers.
	My reservations about CICs are not about such companies per se. In isolation, CICs are fine, but when we consider them alongside all the other new changes—the industrial provident societies and the charitable incorporated organisation, currently included in the draft Charities Bill, which may, or may not, come before the House in the next Session—there is a daunting amount of confusion. The charitable and social enterprise sectors will find the proposals rather daunting, too.
	In fact, the Minister tried to pre-empt my comments. In part of her speech, she was clearly responding to the points I made in Committee about the confusion that exists, although I was not especially trying to ventilate those issues today. She mentioned the fact that the DTI would shortly produce fact sheets on CICs. We welcome that and hope that they will be simple, clear and short; so I hope that the group of officials the Minister finds to draft them will be different from those who drafted the notes that accompanied the Bill.
	I do not even remotely want to risk the wrath of the Minister's Parliamentary Private Secretary, the hon. Member for Edmonton (Mr. Love), by insulting industrial provident societies. Part of the reason why the CIC concept arose is because the Government did not consider that the aims of those societies, enshrined in the original legislation, were sufficiently broad. Indeed, part of my argument on Second Reading was that, with some tweaking of the industrial provident society legislation, it would be unnecessary to introduce this new form, but I accept that we have gone past that point.
	I end on this note. By the middle of next year, we have the prospect that the social enterprise brand will be even less distinct than it is at present. We will have CICs with asset locks. There will be the CIO—unfortunately, a similar acronym—which must be a charity and thus cannot be a CIC, but could be a social enterprise. We will have industrial and provident societies, but they will be rebranded as community benefit societies, which can have an asset lock and may be charities. However, even though community benefit organisations—bencoms—may have exactly the same features as CICs and not be charities, they will not be able to call themselves CICs. Is there a need for that legal soup? That is my main concern, and it will be the main concern of other hon. Members.
	We want the proposals in part 2 to work—there is no question about that—and we all agree that they represent a way to improve and increase social enterprise. My warning to the Minister is that she may have to revisit the form of the CIC because, although nobly inspired, it may not achieve quite what she and her colleagues hope. I very much hope—my colleagues join me in this sentiment—that we are wrong in that, but I warn her that she may find that this is not the end of the legislation required to set up CICs, but merely the beginning of it. However, I beg to ask leave to withdraw the amendment.
	Amendment, by leave, withdrawn.

Schedule 2
	 — 
	Minor and consequential amendments relating to Part 1

Amendments made: No. 17, in page 60, line 16, at end insert—
	'(9A) For the purposes of this section, information obtained by an investigator in consequence of the exercise of his powers under section 453A includes information obtained by a person accompanying the investigator in pursuance of subsection (4) of that section in consequence of that person's accompanying the investigator.'.
	No. 18, in page 60, line 32, leave out paragraph 20 and insert—
	'20 (1) Section 451A (disclosure of certain information) is amended as follows.
	(2) For subsection (1) substitute—
	"(1) This section applies to information obtained—
	(a) under sections 434 to 446;
	(b) by an inspector in consequence of the exercise of his powers under section 453A."
	(3) After subsection (5) insert—
	"(6) For the purposes of this section, information obtained by an inspector in consequence of the exercise of his powers under section 453A includes information obtained by a person accompanying the inspector in pursuance of subsection (4) of that section in consequence of that person's accompanying the inspector.
	(7) The reference to an inspector in subsection (2)(b) above includes a reference to a person accompanying an inspector in pursuance of section 453A(4).".'.—[Jacqui Smith.]
	Order for Third Reading read.

Jacqui Smith: I beg to move, That the Bill be now read the Third time.
	This is a worthwhile and useful Bill. On Report and now on Third Reading, we have managed to retain if not the quantity, then the quality of those hon. Members who are present for the final stages. Of course, the process has enabled the Bill to be further improved during its passage through both Houses, and I am grateful to all hon. Members on both sides of the House who have contributed to the proceedings.
	I am particularly grateful to the hon. Member for Old Bexley and Sidcup (Derek Conway) and my hon. Friend the Member for North-West Leicestershire (David Taylor), who jointly chaired the Standing Committee so effectively and expeditiously, and to all the right hon. and hon. Members who served on the Committee. In particular, the hon. Members for Sutton Coldfield (Mr. Mitchell) and for Weston-super-Mare (Brian Cotter) have done a very fair job in opposition, while recognising the important development that the Bill represents. I should also like to record my gratitude to my officials for the very hard work that they have done in preparing the Bill and during its progress.
	Company law is important. It constitutes the legal framework for nearly 2 million businesses, from one-person companies to multinational giants—companies that create the prosperity, jobs and investment on which we all depend. Given that companies are so important and diverse, Governments must pay particular attention to company law. That is why we set up the independent company law review to prepare the way for the major overhaul of company law that we shall introduce as soon as parliamentary time allows. It is also why the Bill has been the subject of extensive consultation.
	The provisions in part 1 on company accounting and audit stem largely from the work of the co-ordinating group on audit and accounting issues. As the hon. Member for Sutton Coldfield has said, that group was jointly chaired by my predecessor as Minister with responsibility for corporate governance—now the Under-Secretary of State for Health, my hon. Friend the Member for Welwyn Hatfield (Miss Johnson)—and the then Financial Secretary, now the Minister for the Cabinet Office, my hon. Friend the Member for Bolton, West (Ruth Kelly). I pay tribute to their work in setting the important foundations on which parts of the Bill are built.
	The co-ordinating group on audit and accounting issues included senior members of regulatory bodies, such as the Financial Services Authority and the Financial Reporting Council. It published interim and final reports, the latter in January 2003. Its conclusions were clear. It said that we have
	"a sophisticated and effective system of oversight in this country, to the extent that the UK can claim, with some justification, to be at the forefront of best practice."
	However, it went on to say:
	"Nonetheless we believe that change is required . . . Though the recent problems have arisen in the US, their effect has been international and they required a response in the UK. The actions we recommend in this Report will, we believe, make a real difference and ensure that there is justified confidence in financial reporting, accounting and the quality of independent audit."
	As I explained on Second Reading, much of the action recommended did not require legislation. The audit firms made changes to some of their practices and the combined code on corporate governance was revised following reviews by Sir Derek Higgs and Sir Robert Smith. However, some of the recommendations did require legislation, so we brought forward the Bill to implement them as quickly as possible in advance of the main reform of company law to which I referred and to which we remain committed.
	The Government consulted separately in March 2003 on proposals for the reform of the regulatory regime of the accountancy profession and the responses to that process helped to shape the Bill. We also consulted between December 2003 and March 2004 on director and auditor liability. The responses to that consultation prompted amendments to the Bill to allow companies to indemnify directors in certain circumstances and led to the further work that we are now doing with auditors, investors and others to reach agreement on the best way forward on the difficult issue of auditor liability, which I mentioned on Report.
	Part 2 of the Bill, on community enterprise companies, has also been the subject of extensive consultation. As I said earlier, the idea of community interest companies was first proposed in the strategy unit's consultative report "Private action, public benefit", which was published in September 2002. The responses were overwhelmingly supportive. My Department, working with the Treasury and the Home Office, developed the concept further through a more detailed consultation that was launched in March 2003.
	The preparation of the Bill has been open and transparent with much expert input. Moreover, it was thoroughly debated in another place and the Government tabled many amendments in response to the points made there. That was seen most evidently in clause 9, which we completely redrafted.
	Given the consultation process and the successful form in which the Bill has reached this stage, its measures deserve to be put in place as quickly as possible, so I shall outline how we intend to implement them. We expect to commence the Bill in three stages. We plan to commence the powers in the Bill to make subordinate legislation, together with the provisions on finance and liability for the Financial Reporting Council, in January. We shall then make the necessary implementing regulations and orders and bring them into force in parallel with most of the substantive provisions in part 1—on auditors, accounts and reports, directors' liability and company investigations—in April 2005, with the remainder of provisions coming into force in July 2005.
	The provisions on directors' liability close what some regard as a current loophole under which parent or subsidiary companies may provide to directors indemnities that would be void if provided by the company itself. We want to close that loophole in the period between Royal Assent and the commencement of the provisions on directors' liability. We thus intend to provide in the commencement order that existing contracts that are currently permitted, but will become prohibited under the Bill, will remain effective only if they were made before Royal Assent. As I said earlier, we also intend to make the regulations on community interest companies by April and to appoint the regulator by then. We expect the first community interest companies to be able to register in July next year. Companies and individuals are already contacting us and showing the enthusiasm about the opportunities provided by the new legal form that will no doubt exist throughout the whole social enterprise sector.
	The Bill is a model of good legislative practice. It focuses on specific and clearly identified objectives and is the product of extensive consultation, both formal and informal. It is proportionate and will be good for business, good confidence in business and good for social enterprise. It deserves the support of all hon. Members, and I commend it to the House.

Andrew Mitchell: It feels like we have run a marathon, but we are in sight of the finishing tape.
	I join the Minister in thanking my hon. Friend the Member for Old Bexley and Sidcup (Derek Conway) and the hon. Member for North-West Leicestershire (David Taylor), who did a first-class job chairing our Committee proceedings. I also commend the usual channels. The Bill was not programmed but was accomplished in the old-fashioned way and the system worked extremely well. I thank the Minister for her courtesy. We spent much time together working on the Bill and I shall treasure the formal letter she sent conceding that we were right on two small points in Committee, which she addressed by tabling two Government amendments on Report.
	It has been a frustrating experience for Her Majesty's Opposition because our powerful arguments have been politely but firmly rejected. All my attempts at reasonable amendments have been unsuccessful. The Bill would be better had the amendments been accepted. The Minister will appreciate that we regret that they were not.
	The Bill is not party political. It is required and has benefited from a great deal of good work in the Lords. It would be wrong of me not to mention the work by my colleague the noble Lord Hodgson, especially on clause 9. The Government agreed to Opposition amendments on that and, as a result, the clause is now much better.
	There is broad strategic agreement on both sides of the House on what we are trying to achieve. Of course we want to punish wrongdoing and promote good practice. We have been in firm agreement with the Government on those measures that attempt to do that. Our main reservation is that Parliament has been ill used by introducing such measures in this form. They owe it to the House and the business community to bring forward the company law review. The Government have been sitting on that for nearly four years. The good governance of the British corporate sector requires a Bill on that. We are grateful to hear that one will be introduced soon. Although we did not tie the Minister down to precisely when, she made the right noises.
	The second part of the Bill deals with community interest companies. We think that that small measure should be part of a much bigger Bill. It could easily have been tacked on to the draft Charities Bill, which will introduce the charitable incorporated organisation. Our reservations are principally that the Government are wrong to introduce this minnow when they should have introduced the serious legislation that is required following the company law review and the important legislation on charities, for which the charitable organisations have been waiting for so long.
	There are things with which we disagree over and above those two central strategic points. The Government firmly misunderstand the effect of regulation, which stifles initiative and entrepreneurialism. As many commentators have said, it is not the high tax that is the main threat afflicting the business community but the stifling increase in regulation, red tape and bureaucracy that makes Britain less competitive than its neighbours.
	As the Minister knows, we are concerned about the Government's delay in addressing the problem of auditor liability, on which we had a good debate this afternoon. The Government can be left in no doubt about the urgent need for action on auditors, not for their benefit but for the sake of good governance of the corporate sector. Although I did not receive a copper-bottomed assurance from the Minister, I sensed that Ministers in the Department understand the importance of taking action, are consulting and will shortly introduce something very similar to the measures that they obliged their Back Benchers to oppose in the Lobby this afternoon.
	We have not dealt today with director's liability, which we discussed in Committee. The Government satisfied us that they had made some progress when the Minister announced her conclusions on the consultation exercise. However, bigger issues, which I set out on Second Reading, govern the role of non-executive directors. The Government must ensure that governance does not mean that people whom we want to be non-executive directors are unwilling to take on that important role in major public companies because the risk to their reputation and, indeed, their wealth is disproportionate to the rewards. We failed to persuade the Minister in Committee to give greater protection to people below board level. In the other place, the Opposition were successful in changing the onerous burdens imposed on directors by clause 9, but we should give more protection to individuals below board level. I explained on Second Reading that just because I have an encyclopaedia in my study, it does not mean that I have encyclopaedic knowledge. It is important that people below board level who are assumed to have knowledge and are therefore held to account are protected. We made that argument powerfully but, regrettably, the Government did not accept it.
	We tabled amendments on the extent of independent monitoring of major audits and the levy, as well as the nature of disciplinary hearings and whether they accord with natural justice. The Minister politely but firmly resisted all those amendments and the core of her argument was that there was already sufficient protection in the Bill. Time will tell whether that is the case. We are pleased with some of the measures in the Bill, but sorry that not all the changes that we asked for have been accepted. We look forward to the Government introducing other long-awaited legislation and we send the Bill on its way with one cheer but, alas, not with three.

Brian Cotter: We have had some interesting and important debates on the Bill, which makes a welcome effort to improve public confidence in companies and financial markets by strengthening the systems for regulating auditors and accounts in the light of recent scandals such as Enron and Parmalat. The Minister promised further legislation to modernise company law and we believe that the Government will introduce it, because the issue has been in the air for a long time.
	We rightly had robust discussions on the liability of auditors and I hope that the Minister accepts that the issue should be addressed. We had some interesting discussions about investigations and there are issues still outstanding in that regard.
	The Bill includes important provisions relating to the establishment of community interest companies. As I mentioned previously, that is welcomed by the Liberal Democrats, who have a historic commitment to co-operative and mutual structures. Any measures that encourage social enterprises working on behalf of the local community or other good causes are to be welcomed. As we know, social entrepreneurs who want their companies to operate on a not-for-profit basis run into difficulties because company law provides no simple and transparent way to lock profits into a company. The legal process of creating a not-for-profit company can therefore be lengthy and expensive, so the transaction costs can be high.
	Social and philanthropic investors may be deterred by the lack of an obvious profit and asset lock, and may therefore prefer to support other organisations, such as charities. Commercial investors may be puzzled by the complexity and diversity of not-for-profit structures and can see social enterprises as riskier than they really are, which raises the cost of funds. The Bill is welcome because it deals with these concerns and creates a community interest company structure that will address the problems. The Minister announced a short time ago that a great deal of information, fact sheets, advice and help would be available. I reiterate that, as the hon. Member for Sutton Coldfield (Mr. Mitchell) said, it is important that the information is provided in clear and easily understood language.
	I return to an aspect of corporate governance that I raised in Committee—late payment. During the Committee's last sitting, the Minister responded to my amendment which would have required company directors to report their payment performance in a standard and transparent way that would make it easy for their small suppliers to determine the payment record of a large potential customer. Because there is no standard means of reporting payment performance times, a small firm may—and frequently does—find that the job of establishing the payment record of a larger firm is like trying to find a needle in a haystack. Despite the assurances that I was given, I maintain that that is so.
	The lack of clarity and openness does nothing to promote best practice among larger companies or to bring about the culture change necessary to ensure that businesses pay their bills on time. We know that the problem is a significant and continuing one. The Federation of Small Businesses estimates that one in four of all business failures are the result of cash-flow interruption stemming from the culture of late payment that seems to be so entrenched in this country, yet I was disappointed that, in Committee, the Minister apparently brushed aside those concerns. She mentioned the Grant Thornton European business survey as evidence that the situation has improved.
	The survey does suggest that, but there is plenty of contradictory evidence showing that matters are getting worse. The Federation of Small Businesses payment performance league tables show that the average time that it takes a business to pay its bills remains 46 days. That figure has remained the same for the past five years. That is just one example from a list of surveys that have reported a worsening situation, particularly over the past year.
	The Government have taken steps to improve the situation as part of an overall package of measures to tackle late payment. I very much welcomed the Late Payment of Commercial Debts (Interest) Act 1998 and the establishment of the better payment practice group, but unless we ensure that plcs come clean about how long it takes them to pay their bills, how can larger companies be held to account effectively? What motivation will there be for them to improve their performance? At the moment, reporting methods are insufficiently transparent. The Federation of Small Businesses told me that Companies House told it that some 14,000 plcs exist in the UK. By law, each of those companies must provide a statement of payment performance in their annual accounts. The Minister may claim that such a statement can easily be found for each business, but that is far from the case.
	Over the past five years, the FSB has used one of the largest credit reference agencies in the UK and researchers from the university of Leeds, which the previous Minister for Small Business and Enterprise referred to as the "UK's late payment observatory", to compile its payment performance league tables. Yet, even utilising that level of help, the highest number of compliant companies that the FSB has ever found with that data is 4,100, as against the figure of 14,000 UK plcs. Surely the fact that the information is available for less than one third of plcs in the UK undermines the aim of the legislation and means that the Government are failing to implement one of the key elements needed to tackle late payment, namely transparency.
	We have clear evidence that the law is not working, yet the Minister told me in Committee that, under section 257 of the Companies Act 1985, the Secretary of State has the power to introduce a standard method of reporting payment performance. I hope that the Minister will confirm exactly why the Secretary of State has chosen not to use those powers, given the growing weight of evidence. I hope that the Government take late payment seriously and do not brush it to one side.
	It was a pleasure to work with the Minister and other hon. Members on the Bill. I thank the officials and others for the fact that we have a Bill that is an advance, but, as Liberal Democrat Members and others have said, we are looking for something more comprehensive. That said, the Bill has provided an opportunity to raise a significant issue for small businesses, namely the growing problems of cash flow and payment of bills, which I hope that the Government will address now or very shortly.
	Question put and agreed to.
	Bill accordingly read the Third time, and passed, with amendments.

PETITION
	 — 
	Planning (Castle Point)

Bob Spink: Castle Point is overdeveloped for its current infrastructure, yet the Office of the Deputy Prime Minister is forcing 4,000 more houses on my small community, which is against the community's strongly expressed wishes, without any additional infrastructure support whatsoever.
	The petition relates to additional flats opposite Castle View school on Canvey island. The application to build those flats should be rejected for real and substantial planning reasons, including overdevelopment, road safety and other traffic considerations, and public health and safety. I am most obliged to those of my constituents who have signed this petition, because by doing so they show how much they care about defending their community.
	The petition states:
	To the Honourable the Commons of the United Kingdom of Great Britain and Northern Ireland in Parliament assembled.
	The Humble Petition of Mr. and Mrs. Archer and others of like disposition sheweth
	That there is considerable public concern about an application to build residential flats opposite Castle View School, Canvey Island No. CPT/664/04/FUL.
	Wherefore your Petitioners pray that your Honourable House shall urge Castle Point Borough Council to decide this matter by a decision of the Planning Committee rather than under delegated powers and reject the application.
	And your Petitioners, as in duty bound, will ever pray.
	To lie upon the Table.

Bats (Churches)

Motion made, and Question proposed, That this House do now adjourn.—[Gillian Merron.]

John Greenway: I am grateful for the opportunity to raise on the Adjournment of the House a very difficult issue affecting the conservation of our wildlife and of our built heritage, which appear to be in conflict in several locations across Britain. I am deeply grateful for the Minister's time. I hope that he feels that I am approaching the subject in a measured way and that it is worthy of an airing in this place and, ultimately, of more effective action.
	Several hon. Members, including my hon. Friend the Member for North-East Bedfordshire (Alistair Burt), have churches in their constituencies that have become the summer habitat of bats, which are wreaking havoc on their fabric. One such church in my constituency is St. Hilda's church in Ellerburn, near Thornton-le-Dale, which is a very beautiful part of Britain. It is a Saxon church that is more than 1,000 years old. As things stand, it is proving impossible for the bats and the congregation to live side by side. The purpose of this debate is to try to find a solution to a seemingly intractable problem.
	I am grateful to the Bat Conservation Trust for a detailed resumé of the occurrence of bats in the United Kingdom and the law relating to their preservation. I am told that there are no fewer than 16 species of bat in the UK, all of which are protected by law because their numbers have declined—although not necessarily in each case to a level where all species can be said to be endangered.
	The Wildlife and Countryside Act 1981, which was later amended by the Countryside and Rights of Way Act 2000, made it an offence to kill, injure or disturb bats and to damage, disturb or obstruct access to a bat roost. I understand that similar protection is afforded by the European Union habitats directive on the conservation of natural habitats and wild flora and fauna.
	St. Hilda's church in Ellerburn is one of Yorkshire's most significant sites for bats. It is home to four of the county's eight bat species—the whiskered bat, the pipistrelle, the brown long-eared bat and the Natterer's bat. Whiskered and pipistrelle bats roost in the roof space—not in the belfry as is commonly thought—but Natterer's and brown long-eared bats roost in the church itself. Clearly, problems emerge if the church is small, as is St. Hilda's.
	The Bat Conservation Trust claims that the colony of Natterer's bats at St. Hilda's is particularly important as it is one of only 25 in the whole county of North Yorkshire. I have no information about how many other colonies there are across the country, but I gain the impression from my research into the number of churches complaining about Natterer's bats that there are many similar roosts and that, although English Nature claims that it is threatened, the species cannot be said to be close to extinction. If it were, my attitude might be rather different.
	The Bat Conservation Trust claims that during a survey in May this year around 65 bats were found to be using St Hilda's church. Not surprisingly, because some of the bats prefer to roost inside the church, the church fabric is suffering significant and largely irreversible damage. I apologise, Mr. Speaker, because this is not a pleasant topic, but the sad truth has to be faced that the volume of urine and bat excreta throughout the entire church at Ellerburn is ruining all the internal fabric of the church, including the furniture and a number of artefacts. The experience at St. Hilda's appears to be in keeping with that of other churches that have suffered significant damage and disfigurement, mostly from chemical erosion, to works of art, wall paintings, brasses, pews, organ pipes, sculptures, stone floors, wooden carvings and even historic gravestones.
	The continuing presence of bat droppings is a health hazard for the congregation and, unsurprisingly, attendance at St. Hilda's has declined to a handful of elderly parishioners. I am told that English Nature and the North Yorkshire Bat Group, with the support of the Archdeacon of Cleveland, who e-mailed me today, have tried to mediate between the Bat Conservation Trust and local parishioners but that it has proved impossible to find a compromise. Would that they had found one: we might have been spared being here now. The problem is that the parishioners would like to be rid of the bats inside a relatively small church. They find suggestions that they should put up with the constant deluge of bat urine and faeces every summer a trifle hard to take.
	Guidelines that English Heritage and English Nature published, of which, for greater accuracy, I have a copy, do not appear to offer a long-term practical solution. They suggest the use of covers, synthetic lacquers, deflector boards, stuffed owls and sound generating devices, but none of those appears able to do the trick. The parishioners have decided that they would like to be rid of the bats, and, in truth, I do not blame them.
	The alternatives of relocation and exclusion offer little comfort. Relocation simply moves the problem to another part of the church, and, in a small church, that is practically impossible. So far as exclusion is concerned, the advice to the church is that, in effect, the law denies that opportunity as it could represent the obstruction of access under the legislation. I shall revert to that later because it is one of the key points.
	The joint English Nature and English Heritage leaflet is valuable in demonstrating the damage that can be done by bats in churches. I do not know whether you can see the leaflet, Mr. Speaker, but it shows some of the damage to which I referred and that occurs in counties throughout the country. It is a serious matter and, although it has an amusing aspect, I am afraid that we have reached the stage when people are rightly saying that something must be done.
	In any event, all the advice from English Nature, English Heritage and other quarters that I have been able to access is directed at trying to protect the structure or fabric of the church. It offers absolutely no comfort or help to the people who use the church. As Bishop David Galliford, retired chaplain to the Queen, rightly said:
	"Clearly the law is unfair. It gives bats far more rights than humans and no one can accept this when it threatens to drive people out of the church and close it."
	His poor wife, Clare, fell ill with severe food poisoning after attending a service at St. Hilda's, and I am told that she was unwell for a fortnight.
	The rector of Ellerburn church, David Clark, believes that the bats accessing the church through a gap in the door cause the problem. The congregation believes that the gap could be sealed, as one would seal any door in one's home through which draughts, insects or small creatures may gain access. However, I am told that the advice to the church is that sealing the church door with, for example, rubber would require a licence from the Department for Environment, Food and Rural Affairs and approval from the European Union. The church has been discouraged from following that road on the basis that it would be wasting its time. If nothing else, I want the Minister to confirm today the exact position on that. I hope that something can be done along those lines.
	It is said that the bats have been at Ellerburn church every summer for the past 10 years. We are considering those inside the church, not those in the roof. If nothing is done to redirect them to another site, the inevitable consequence is that the church will be lost to its congregation and simply become a roosting site for bats. Another parishioner, John Grimble, who is aged 79 and has been going to church all his life, commented:
	"If we can't find a solution, we will be forced to lock up this beautiful church where folk have worshipped for over 1,000 years."
	I know that we sometimes do daft things in this place, but I cannot believe that such an outcome was the intention of Parliament or the European Union when they considered the current legislation. However, unless something is done, whether through a change in the law or through guidance, the inevitable consequence will be that this church and many others will become derelict, and centuries of ecclesiastical architectural history will be lost.
	I suppose that one of the reasons that churches are so attractive to bats is that they are uninhabited for long periods of time or, dare I say it, inhabited by just a few, as the House is now. Their ceilings and timbered roofs are particularly appealing. When I was preparing my remarks, it crossed my mind to wonder what would happen if these Natterer's bats, or similar bats, got into the Palace of Westminster. Unlike another recent invasion, it might take rather longer to spot them. Westminster Hall is nearly as old as St. Hilda's church in Ellerburn, and there are many other parts of the Palace that might be similarly attractive. I appreciate, of course, that we are not surrounded by the beautiful countryside of North Yorkshire, and we do not have the caves in the North York Moors national park where the bats over-winter just up the road. But the point that I am trying to emphasise is that I am quite sure the Accommodation and Works Committee here would not take kindly to having to deal with the problems of mess faced every Sunday by the parishioners at St Hilda's and scores of other churches up and down Britain.
	So, enough about the problem: what needs to be done? In the first instance, I would like the Minister to consider issuing fresh guidance to churches about exactly what can be done about this problem. Church authorities need to know what, if anything, they can do under the existing law to take the action needed during the winter months to prevent the bats from regaining access in the spring when they return from their winter roosting sites. If this were possible under licence from DEFRA, will the Minister make it clear in what circumstances such consent would be granted and what role, if any, the EU would have in such circumstances?
	It would also help if clarification could be given on what action is permissible to relocate the bats not to another part of the church but to an alternative site. If, as I suspect, the answer to all those questions is that nothing practical is realistically possible, I would ask the Minister to consider at the very least tabling an amendment to the law to allow churches the opportunity of blocking access points without fear of prosecution under the existing legislation. Otherwise, as I have already said, these churches are going to be abandoned and simply left as roosting sites for bats.
	That would be an unacceptable outcome for any church. It is even more unacceptable if the church is listed or generally regarded as uniquely historic. There is no doubt whatever that St Hilda's church in Ellerburn—a beautiful Saxon church, few of which remain in Britain—fits the latter description. It seems ludicrous that while the present law, with the permission of English Nature, allows bats, common or rare, to be removed from the interior of someone's dwelling, they cannot be removed from the house of God.
	Sadly, there is a seemingly irreconcilable conflict between the conservation of one species of wildlife and the conservation of our built heritage, not to mention the interests of churchgoers. While I agree that every effort should be made to enable the two to live side by side whenever possible, I would urge the Minister to accept that there may be circumstances where the differences are, sadly, irreconcilable. At present, the law appears to come down on the side of the bats. I believe that it is time the balance was redressed just a little towards the interests of parishioners and the fabric of their church.
	To conclude, I would like the Minister to consider allowing an exemption for our most historic churches. It is not right that we just stand aside and, in the interests of bat conservation, allow historic churches to be destroyed.
	It being Seven o'clock, the motion for the Adjournment of the House lapsed, without Question put.
	Motion made, and Question proposed, That this House do now adjourn.—[Mr. Kemp.]

John Greenway: That is why I sought to raise this issue on the Adjournment. I hope that whatever the Minister may have prepared to say, he will at least give some thought to the suggestion about how we give greater protection to our most historic churches.

Alistair Burt: I am grateful to my hon. Friend for allowing me a few words in his Adjournment debate, and I congratulate him on raising the subject. I am also grateful for the courtesy of the Minister in allowing me to make some comments.
	Some of the historic churches of North-East Bedfordshire suffer from the same problem as that described by my hon. Friend. In particular, I have been addressed on this matter by the church wardens of St. Mary's the Virgin, Stevington, to which St. Hilda's sounds similar. I have visited the church and seen the damage. It is pitiful to see what can happen to a church over long years of bat infestation. I also commend to the Minister, if he has not had a chance to see it, "Our Beleaguered Heritage", published in 2000, which is by Catherine Ward, who has made a considerable study of the problem on behalf of parish churches. I am sure that I can obtain a copy for him.
	My constituents, the church wardens of St. Mary's the Virgin, Stevington, put it most clearly in a letter:
	"we have for many years had a serious bat problem which is worsening. Every week the church is cleaned on Fridays and has to be swept again before morning service on Sunday because of the faeces of the bats. The woodwork and brass in this 9th century church is pitted, the tiled floor is splashed and permanently stained with urine. Even during the winter months of so called hibernation there is evidence of the bats."
	They continued:
	"The church is not just a building, it is for the congregation who worship, take refreshments and care for it".
	Naturally, my constituents are concerned for the health and welfare of those who worship there, particularly children, because the cleaning, however effective, cannot be wholly complete.
	As my hon. Friend said, we have no desire to reverse the entire law relating to the protection of bats, as they are indeed one of the glories of our countryside, but there is a clear clash of interests in this corner of England's heritage. We ask simply that our historic churches, which are surely as much a part of England's glory as the bats, have a more equal voice than they have had up to now; otherwise, some of the precious heritage of which we have spoken will not only be pitted and stained but lost for ever.

Ben Bradshaw: May I start by congratulating both the hon. Members for Ryedale (Mr. Greenway) and for North-East Bedfordshire (Alistair Burt) on bringing to our attention this serious issue, and on doing so in a constructive and balanced way?
	The hon. Member for Ryedale will not be surprised, as he successfully secured this Adjournment debate, that I made it my businesses to find out a little more about some of the problems that he was addressing in his constituency in the church of St. Hilda's in Ellerburn. As he has pointed out, they have been going on for some time. The church authorities in Ellerburn have already talked to English Nature about their problem, and English Nature, which is the Government's statutory wildlife adviser, has been involved in trying to help the church minimise the problems caused by bats in that instance. It may help if I outline briefly some of the general issues behind the problems that he has mentioned.
	As the hon. Gentleman has said, there are 16 species of bat in the UK, some of which have declined significantly in the past. That decline has been caused by a number of factors, including the reduction in food sources, in part, pesticide use, the loss of feeding habitats and the loss of roosts in trees and buildings. Most UK species were originally woodland bats, but as the amount of suitable woodland has declined they have adapted themselves to use man-made habitats. Churches are an ideal habitat for bats: they tend to offer little disturbance, constant temperatures and many crevices and gaps in timber that can be used for roosting.
	As has been said, bats are afforded the highest level of protection under the UK's conservation legislation. Any activity resulting in the damage or destruction of a roost would be an offence under the Wildlife and Countryside Act 1981 and the Conservation (Natural Habitats) Regulations 1994 unless an appropriate licence had been obtained from my Department.
	Licences are free of charge. No fee is charged for the assessment, or for any site visits by DEFRA officials. Licences may be applied for, for any of the purposes stated in the 1994 regulations. They include
	"imperative reasons of overriding public interest including those of a social nature."
	I think that both hon. Members would agree that attending church, particularly in rural areas, would be considered an important social activity—certainly by those who attend church.
	Four species of bat are known to use St Hilda's. The presence of a sizeable maternity roost of Natterer's bats is of important conservation interest. Maternity roosts of that species are not commonly found, and English Nature believes that this is possibly the largest of the few roosts that are known in North Yorkshire.
	Churches are a major repository of a wide variety of objects, both fixed and mobile, many of which are of historic and artistic interest. Far be it from me to damage further the unjustifiably negative reputation of the bat at this time of the year, but the hon. Member for Ryedale was right to point out that bats stain such objects with their faeces. Droppings and urine can cause a problem: urine can stain brass, marble and wood. Some bats are worse than others in that regard, and Natterer's bats fall into that category. I am told that there is also a problem with smell.
	I understand that, in the past, English Nature has offered to pay for cleaning and covers in the church concerned, and also for deflector shields to protect important church artefacts. I am informed that those offers have not so far been taken up. My Department has advised on the licensing provisions and the system available to the church to alleviate the problem. To date no application has been received. In my view, the problem that the hon. Gentleman mentioned with a gap in the door would merit at least an application of the sort that I have described. There is no need for permission for such a licence from the European Union. As for the hon. Gentleman's suggestion that there should be a general exemption for historic churches, I do not think that that is justified at the moment. I am happy to look at it again, but until the current licensing system is tested, it would be premature to talk about changing the law.

John Greenway: The Minister has made a very constructive suggestion, but may I ask him a question? If the church made an application, presumably those who disagreed—of whom there are a number, some of them my constituents—would be able to make objections. I do not want the Minister to pre-empt decisions that he may make later, but will he reassure me that the licences can be issued, and that this is not simply a means of going through the motions and getting nowhere in the end?

Ben Bradshaw: I can say without pre-empting any such application that I understand from the background to the case, and from what the hon. Gentleman and his hon. Friend have described as a growing problem, that this may represent a rather interesting test case. Of course there would be objections, and the Government would be obliged to take advice from statutory advisers including English Nature. I think all Members would agree, however, that laws are there to be implemented in a reasonable way. This is the first case of this kind of such seriousness that I have encountered, but I would certainly encourage the church authorities concerned to use the powers that they already have under the law before we start examining other options.
	Both hon. Members mentioned the fear that the bats might pose a health risk. I can reassure them that the health risk from bat droppings is minimal, since they consist of the indigestible hard parts of insects. I am aware of the hon. Member for Ryedale's concern, reported in the local press, about the perceived health risk to human beings, including to one of his constituents, who reportedly suffered from food poisoning after attending church. I should point out that there is no known instance in the United Kingdom of diseases being transferred to humans from bat droppings, so we have no reason to believe that bat droppings in this country pose a serious risk to humans. I suggest to the hon. Gentleman and his parishioners that if members of the congregation are concerned about taking communion after having possibly touched bat droppings, there is always the option of receiving the Host directly on to the tongue, rather than via the hand. That might be a sensible hygiene precaution.
	My officials and I are very sympathetic to the plight of churches and the problems that they face when there is perceived conflict between their needs and those of bats. In view of the importance of St. Hilda's church to both humans and bats, we should all work together to ensure that they can co-exist. If the church officials wish to exclude bats from the main body of the church, I urge them to apply to my Department for a licence to do so.
	Question put and agreed to.
	Adjourned accordingly at eleven minutes past Seven o'clock.

CORRECTION

15 September 2004: in col. 1400, above "8.41 pm" insert the following:

Andrew Robathan: I know that my hon. Friend has a farm, and that he was a farmer before coming to the House. I too have a farm. We heard the hon. Member for Worcester (Mr Foster) talking about the "round Worcester" ride. I want foxes to be kept down, but I do not want my land to be torn up by hundreds of yahoo, tally-ho types riding across it. I do not want my land to be a pleasure ground for people on horses.

Geoffrey Clifton-Brown: My hon. Friend is right. The hon. Member for Worcester went out hunting once and thinks he knows all about it. He quoted from his local newspaper, saying that the summer ride of the Warwickshire hunt would be an alternative to fox hunting. That shows how little he knows about fox hunting. For years, most hunts have used these summer rides as a means of raising money, or as an activity at a time of year when there is no fox hunting. I wish that Opposition Members would check their facts before speaking on the subject. Nothing annoys my constituents more than Opposition Members talking about fox hunting when they know nothing about it.
	I make one plea to the Minister. People in my constituency will lose jobs; that will cause hardship. They are badly paid. The Government could make this measure a little more palatable by conceding on the compensation point. It would not cost much money, but for those people who lose their jobs it would help considerably if they had a compensation package.